Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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NEW CENTURY MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation
or Organization)
[Applied For]
(I.R.S. Employer Identification No.)
18400 Von Karman
Irvine, California 92612
(949) 863-7243
(Address, Including Zip Code, and
Telephone Number, Including Area
Code, of Registrant's Principal
Executive Offices)
Patrick Flanagan
New Century Mortgage Securities, Inc.
18400 Von Karman
Irvine, California 92612
(949) 863-7243
(Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent For Service)
----------------
Copies to:
Richard M. Horowitz, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registered registered unit (1) price (1) fee
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<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates
and Mortgage-Backed Notes, issued
in Series............................... $1,000,000.00 100% $1,000,000.00 278.00
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee on
the basis of the proposed maximum aggregate offering price.
-------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
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CROSS REFERENCE SHEET FURNISHED PURSUANT TO RULE 404(a)
Items And Captions In Form S-3 Location In Prospectuses
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<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................................. Forepart of Registration
Statement and Outside Front
Cover Page of
Prospectuses**
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................................... Inside Front Cover Page of
Prospectuses and Outside
Back Cover Page of
Prospectuses**
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................................... Summaries of Prospectus;
Special Considerations
4. Use of Proceeds................................................ Use of Proceeds**
5. Determination of Offering Price................................ *
6. Dilution....................................................... *
7. Selling Security Holders....................................... *
8. Plan of Distribution........................................... Method of Distribution**
9. Description of Securities to Be Registered..................... Outside Front Cover Page;
Summaries of Prospectus;
Description of the Trust
Funds; Description of the
Certificates**
10. Interests of Named Experts and Counsel......................... *
11. Material Changes............................................... Financial Information
12. Incorporation of Certain Information by Reference.............. Incorporation of Certain
Information by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................. See page II-2
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* Answer negative or item inapplicable.
** To be completed or provided from time to time by Prospectus Supplement.
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement consists of (i) a basic
prospectus, (ii) an illustrative form of prospectus supplement for use in an
offering of Mortgage Pass-Through Certificates consisting of Senior/Subordinate
Certificates ("Version 1"), (iii) an illustrative form of prospectus supplement
for use in an offering a series of Mortgage Pass-Through Certificates with
various combinations of Credit Support ("Version 2"), and (iv) an illustrative
form of prospectus supplement for use in an offering of Mortgage-Backed Notes
("Version 3").
<TABLE>
<CAPTION>
Contents Of Registration Statement
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Page
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<S> <C> <C>
Forms of Prospectus Supplement:
Version 1: Form of Prospectus Supplement relating to
a typical Senior/Subordinate Series............................................. S-1
Version 2: Form of Prospectus Supplement relating to
Certificates with various combinations
of Credit Support............................................................... S-1
Version 3: Form of Prospectus Supplement relating to
an offering of Mortgage-Backed Notes............................................ S-1
Basic Prospectus....................................................................................... 1
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated April __, 1999
[Version 1]
Prospectus Supplement
(To Prospectus dated , ____)
$_______________ (APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-
NEW CENTURY MORTGAGE SECURITIES, INC.
DEPOSITOR
MASTER SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
The certificates will represent interests only in a trust consisting primarily
of mortgage loans and will not represent ownership interests in or obligations
of any other entity.
This prospectus supplement may be used to offer and sell the certificates
offered hereby only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
THE TRUST --
o will consist primarily of a mortgage pool of one- to four-family
fixed-rate residential mortgage loans; and
o will be represented by ______ classes of certificates, ______ of which
are offered hereby.
THE OFFERED CERTIFICATES --
o will represent senior, subordinate or residual interests in the trust
and will receive distributions from the assets of the trust; and
o will receive monthly distributions commencing on ________, __ ____
CREDIT ENHANCEMENT --
o the senior certificates will have credit enhancement in the form of
subordination; and
o the offered subordinate certificates will have credit enhancement in the
form of subordination provided by certain classes of non-offered
subordinate certificates and offered subordinate certificates with lower
payment priorities;
__________________ (the "Underwriter") will offer the Class A-1 Certificates,
the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4
Certificates, the Class A-5 Certificates, the Class A-6 Certificates, the Class
A-7 Certificates, Class XS Certificates, the Class B-1 Certificates, the Class
B-2 Certificates and the Class B-3 Certificates (collectively, the "Offered
Certificates") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The proceeds
to the Depositor from the sale of such certificates, before deducting expenses,
will be approximately _____% of the initial principal balance of such
certificates, plus accrued interest on such certificates. The Underwriter's
commission will be any positive difference between the price it pays to the
Depositor for such certificates and the amount it receives from the sale of such
certificates to the public. See "Method of Distribution" in this prospectus
supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.
We provide information to you about the Offered Certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
New Century Mortgage Securities, Inc.'s principal offices are located at 18400
Von Karman, Irvine, California 92612 and its phone number is (949) 440-7030.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT .......................................... S-__
RISK FACTORS .............................................................. S-__
USE OF PROCEEDS ........................................................... S-__
THE MORTGAGE POOL ......................................................... S-__
YIELD ON THE CERTIFICATES ................................................. S-__
DESCRIPTION OF THE CERTIFICATES ........................................... S-__
POOLING AND SERVICING AGREEMENT ........................................... S-__
FEDERAL INCOME TAX CONSEQUENCES ........................................... S-__
METHOD OF DISTRIBUTION .................................................... S-__
SECONDARY MARKET .......................................................... S-__
LEGAL OPINIONS ............................................................ S-__
RATINGS ................................................................... S-__
LEGAL INVESTMENT .......................................................... S-__
ERISA CONSIDERATIONS ...................................................... S-__
S-2
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SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES
OFFERED HEREBY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF
THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series..................New Century Mortgage Securities, Inc., Mortgage
Pass-Through Certificates, Series ____-_.
Cut-off Date.....................__________ __, ____.
Closing Date.....................On or about __________ __, ____.
Depositor........................New Century Mortgage Securities, Inc. The
Depositor will deposit the mortgage loans into
the trust. SEE "THE DEPOSITOR" IN THE
PROSPECTUS.
Mortgage Loan Seller.............
Originator and Master Servicer...__________________. SEE "THE MORTGAGE
POOL--UNDERWRITING STANDARDS" AND "POOLING AND
SERVICING AGREEMENT--THE ORIGINATOR AND MASTER
SERVICER" IN THIS PROSPECTUS SUPPLEMENT.
Trustee..........................__________________. SEE "POOLING AND SERVICING
AGREEMENT--THE TRUSTEE" IN THIS PROSPECTUS
SUPPLEMENT.
Distribution Dates...............Distributions on the Offered Certificates will
be made on the __th day of each month, or, if
such day is not a business day, on the next
succeeding business day, beginning in ______
____.
Offered Certificates.............Only the certificates listed in the table below
are being offered pursuant to this prospectus
supplement. The classes of offered certificates
and their pass-through rates and certificate
principal balances or notional amounts are set
forth in the table below.
S-3
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<TABLE>
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Initial Certificate Pass-Through Initial Certificate Pass-Through
Class Principal Balance(1) Rate Class Principal Balance(1) Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A-1 $_________ ____% XS. . . . . $__________(2) Variable(3)
A-2 $_________ ____% B-1. . . . $__________ ____%
A-3 $_________ ____% B-2. . . . $__________ ____%
A-4 $_________ ____% B-3. . . . $__________ ____%
A-5 $_________ ____% R. . . . . $100 ____%
A-6 $_________ ____%
===================================================================================================================
</TABLE>
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(1)Approximate.
(2)Approximate Initial Notional Amount.
(3)Calculated as described in this prospectus supplement.
THE TRUST
The depositor will establish a trust with respect to the Series ____-_
Certificates, pursuant to a pooling and servicing agreement dated as of
__________ __, ____ among the depositor, the master servicer and the trustee.
There are _____ classes of certificates representing the trust. SEE "DESCRIPTION
OF THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
The certificates represent in the aggregate the entire beneficial ownership
interest in the trust. Distributions of interest and/or principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described below.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate mortgage loans secured by first liens on residential real properties.
The mortgage loans have an aggregate principal balance of approximately
$__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Range of mortgage rates _____% to _____%.
(approximate):
Weighted average mortgage ______%.
rate (approximate):
Weighted average remaining ___ years and ___ months.
term to stated maturity
(approximate):
Range of principal balances $__________ to
(approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value _____% to _____%..
ratios (approximate):
Weighted average ______%.
loan-to-value ratio
(approximate):
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table above in this prospectus supplement. The pass-through rates
on each class of offered certificates (other than the Class XS Certificates) are
fixed and shown in the table above. The pass-through rate on the Class XS
Certificates is variable and will be calculated for each distribution date as
described under "Description of the Certificates--Pass-Through Rate" in this
prospectus supplement. The initial variable pass-through rate for the Class XS
S-4
<PAGE>
Certificates is approximately _____% per annum.
The offered certificates will be sold by the depositor to the underwriter on the
closing date. [The underwriter will sell the Class XS Certificates.]
The offered certificates will initially be represented by one or more global
certificates registered in the name of CEDE & Co., as nominee of the Depository
Trust Company in minimum denominations of $[10,000] and integral multiples of
$[1.00] in excess thereof. SEE "DESCRIPTION OF THE CERTIFICATES --REGISTRATION
OF THE BOOK-ENTRY CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
The Class XS Certificates will be offered in registered, certificated form,
generally in minimum denominations of $[10,000] and integral multiples of
$[1,000] in excess thereof.
The Class R Certificates will be offered in registered, certificated form, in
minimum denominations of $[20] and integral multiples thereof.
CLASS B-4 CERTIFICATES, CLASS B-5 CERTIFICATES AND CLASS B-6 CERTIFICATES. Such
certificates are not offered hereby. Such certificates have in the aggregate an
initial certificate principal balance of approximately $____________, evidencing
an aggregate initial undivided interest in the trust of approximately _____%.
Such Certificates will be sold by the Depositor to ____________ on the closing
date.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of subordination as described below and under "Description
of the Certificates--Allocation of Losses; Subordination" in this prospectus
supplement.
SUBORDINATION. The rights of the holders of the Class B-1 Certificates, the
Class B-2 Certificates, the Class B-3 Certificates, the Class B-4 Certificates,
the Class B-5 Certificates and the Class B-6 Certificates (the "Subordinate
Certificates") to receive distributions will be subordinated, to the extent
described in this prospectus supplement, to the rights of the holders of each
class of Class A Certificates.
In addition, the rights of the holders of Subordinate Certificates with higher
numerical class designations will be subordinated to the rights of holders of
Subordinate Certificates with lower numerical class designations, to the extent
described in this prospectus supplement.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior certificates in respect of interest and principal and to afford
such certificates protection against realized losses on the mortgage loans as
described below.
ALLOCATION OF LOSSES. Except as described below, if Subordinate Certificates
remain outstanding, losses on the mortgage loans will be allocated first to the
class of Subordinate Certificates with the lowest payment priority, and the
other classes of certificates will not bear any portion of such losses. If none
of the Subordinate Certificates remain outstanding, losses on mortgage loans
will generally be allocated to the Class A Certificates.
Not all losses will be allocated in the priority set forth above. Losses due to
natural disasters such as floods and earthquakes, fraud by a mortgagor,
bankruptcy of a mortgagor or certain other extraordinary events will be
allocated as described above only up to specified amounts. Losses of these types
in excess of the specified amount will, in general, be allocated to all
outstanding classes of certificates (other than the Class XS Certificates) PRO
RATA in proportion to their remaining principal balances. Therefore, the
Subordinate Certificates do not act as credit enhancement for such losses.
P&I ADVANCES
The master servicer is required to advance delinquent payments of principal and
interest on the mortgage loans, subject to the limitations described in this
prospectus supplement. The master servicer is entitled to be reimbursed for such
advances, and therefore such advances are not a form of credit enhancement. SEE
"DESCRIPTION OF THE
S-5
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CERTIFICATES--P&I ADVANCES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF
THE SECURITIES--ADVANCES IN RESPECT OF DELINQUENCIES" IN THE PROSPECTUS.
OPTIONAL TERMINATION
At its option, the master servicer may purchase all of the mortgage loans,
together with any properties in respect thereof acquired on behalf of the trust,
and thereby effect termination and early retirement of the certificates, after
the aggregate principal balance of the mortgage loans (and properties acquired
in respect thereof) remaining in the trust has been reduced to less than [10%]
of the aggregate principal balance of the mortgage loans as of __________ __,
____. SEE "POOLING AND SERVICING AGREEMENT-- TERMINATION" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES-- TERMINATION" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust as a real estate mortgage investment
conduit for federal income tax purposes. SEE "FEDERAL INCOME TAX
CONSEQUENCES--CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES" IN THE
PROSPECTUS.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive the following ratings from [______________ ("_____") and
___________ ("_________")]:
OFFERED
CERTIFICATES [RA] [RA]
- ------------ ---- ----
Class A-1 AAA AAA
through Class
A-7
Class XS AAA AAA[r]
Class B-1 AA AA
Class B-2 A A
Class B-3 BBB BBB
Class R AAA AAA
- ---------------------
[(1) Not rated.]
A security rating does not address the frequency of prepayments on the mortgage
loans, the corresponding effect on yield to investors or whether investors in
the Class XS Certificates may fail to recover fully their initial investment.
[The "r" symbol in certain _____________ ratings is attached to highlight
certificates that __________ believes may experience high volatility or high
variability in expected returns due to non-credit risks. The absence of an "r"
symbol should not be taken as an indication that a certificate will exhibit no
volatility or variability in total return.]
The ratings on the Class R Certificates do not address the likelihood of receipt
by the holders of such certificates of any amounts in excess of the initial
certificate balance thereof and interest thereon. SEE "YIELD ON THE
CERTIFICATES" AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD
CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered certificates (other than the Class ___ and Class ___ Certificates)
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they are rated
not lower than the second highest rating category by one or more nationally
recognized statistical rating organizations and, as such, will be legal
investments for certain entities to the extent provided in SMMEA and applicable
state laws. The Class ___ Certificates and the Class ___ Certificates will not
S-6
<PAGE>
constitute "mortgage related securities" for purposes of SMMEA. SEE "LEGAL
INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23, to the Underwriter. Such exemption generally
exempts from the application of certain of the prohibited transaction provisions
of Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes imposed on such prohibited transactions
by Section 4975(a) and (b) of the Internal Revenue Code of 1986 (the "Code") and
Section 502(i) of ERISA, transactions relating to the purchase, sale and holding
of pass-through certificates underwritten by the Underwriter. Such exemption
generally applies to certificates such as the Class A Certificates and the Class
XS Certificates, and the servicing and operation of asset pools such as the
mortgage pool, provided that certain conditions are satisfied.
Such exemption will only apply to the Class A Certificates and the Class XS
Certificates. ACCORDINGLY, THE OTHER CLASSES OF CERTIFICATES MAY NOT BE ACQUIRED
BY OR ON BEHALF OF A PLAN EXCEPT AS DESCRIBED IN THIS PROSPECTUS SUPPLEMENT. SEE
"ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
S-7
<PAGE>
RISK FACTORS
[In addition to the matters described elsewhere in this prospectus
supplement and the prospectus, prospective investors should carefully consider
the following factors before deciding to invest in the offered certificates].
[Appropriate Risk Factors as necessary]
[THE UNDERWRITING STANDARDS OF THE MORTGAGE LOANS ARE NOT AS STRINGENT AS THOSE
UNDERWRITTEN IN A MORE TRADITIONAL MANNER, OR UNDERWRITTEN TO THE STANDARDS OF
FANNIE MAE AND FREDDIE MAC, WHICH MAY RESULT IN LOSSES ALLOCATED TO THE OFFERED
CERTIFICATEHOLDERS
The originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The originator provides loans
primarily to borrowers who do not qualify for loans conforming to Fannie Mae and
Freddie Mac guidelines but who generally have equity in their property. While
the originator's primary consideration in underwriting a mortgage loan is the
value of the mortgaged property, the originator also considers, among other
things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
The originator's underwriting standards do not prohibit a mortgagor from
obtaining secondary financing at the time of origination of the originator's
first lien, which secondary financing would reduce the equity the mortgagor
would otherwise have in the related mortgaged property as indicated in the
originator's loan-to-value ratio determination.
As a result of the underwriting standards described above, the mortgage
loans in the mortgage pool are likely to experience rates of delinquency,
foreclosure and bankruptcy that are higher, and that may be substantially
higher, than those experienced by mortgage loans underwritten in a more
traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITING STANDARDS; REPRESENTATIONS" IN THIS PROSPECTUS
SUPPLEMENT].
[THE PAYMENT PERFORMANCE OF THE CERTIFICATES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE TRUST FUND; GREATER RISK OF LOSS IS
ASSOCIATED WITH CERTAIN MORTGAGE LOANS.
The certificates represent an interest in mortgage loans. In the event that
the mortgaged properties fail to provide adequate security for the mortgage
loans included in the trust fund, any resulting losses, to the extent not
covered by the credit enhancement, will be allocated to the certificates as
described in this prospectus supplement, and consequently may adversely affect
the yield to maturity on your certificate. The depositor cannot assure you that
the values of the mortgaged properties have remained or will remain at the
appraised values on the dates of origination of the mortgage loans. Certain
types of mortgage loans may have a greater likelihood of delinquency and
foreclosure, and a greater likelihood of loss in the event thereof. You should
consider the following risks associated with the mortgage loans included in the
trust fund: [AS APPLICABLE]
NEGATIVELY AMORTIZING LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of _______________, are subject to negative
amortization. In the case of mortgage loans that are subject to negative
amortization, the principal balances of such mortgage loans could be increased
to an amount equal to
S-8
<PAGE>
or in excess of the value of the underlying mortgaged properties, thereby
increasing the likelihood of default. To the extent that such losses are not
covered the credit enhancement in the trust fund, holders of the certificates
will bear all risk of loss resulting from default by mortgagors and will have to
look primarily to the value of the mortgaged properties for recovery of the
outstanding principal and unpaid interest on the defaulted mortgage loans.
BUYDOWN MORTGAGE LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of _________________ are buydown mortgage loans,
subject to temporary buydown plans pursuant to which the monthly payments made
by the mortgagor during the early years of such mortgage loan will be less than
the scheduled monthly payments on the mortgage loan, the resulting difference to
be made up from (a) an amount contributed by the borrower, the seller of the
mortgaged property or another source and placed in a custodial account, (b)
investment earnings on the amount, if any, contributed by the borrower, or (c)
additional buydown funds to be contributed over time by the mortgagor's employer
or another source. Generally, the mortgagor under each buydown mortgage loan
will be qualified at the applicable lower monthly payment. Accordingly, the
repayment of a buydown mortgage loan is dependent on the ability of the
mortgagor to make larger level monthly payments after the buydown funds have
been depleted and, for certain buydown mortgage loans, during the initial
buydown period. The inability of a mortgagor to make such larger monthly
payments could lead to losses on such mortgage loans, and to the extent not
covered by the credit enhancement, may adversely affect the yield to maturity on
your certificates.
BALLOON LOANS. Approximately ___% of the mortgage loans by aggregate
principal balance as of ________________ may not be fully amortizing, or may not
amortize at all, over their terms to maturity and, thus, will require
substantial payments of principal and interest, that is, balloon payments, at
their stated maturity. Mortgage loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a mortgagor to make a
balloon payment typically will depend upon its ability either to fully refinance
the loan or to sell the related mortgaged property at a price sufficient to
permit the mortgagor to make the balloon payment. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related mortgaged property, the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in the
related mortgaged property, prevailing general economic conditions and the
availability of credit for loans secured by comparable real properties.
NON-OWNER-OCCUPIED PROPERTIES. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________ are nonrecourse loans or
loans for which recourse may be restricted or unenforceable. As to those
mortgage loans, recourse in the event of mortgagor default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the mortgage loan. However, even with respect to those mortgage loans that
provide for recourse against the mortgagor and its assets generally, there can
be no assurance that enforcement of such recourse provisions will be
practicable, or that the other assets of the mortgagor will be sufficient to
permit a recovery in respect of a defaulted mortgage loan in excess of the
liquidation value of the related mortgaged property.
HOME EQUITY LINE OF CREDIT LOANS. Approximately ___% of the mortgage loans
by aggregate principal balance as of ________________ are mortgage loans that
provide the borrower with a line of credit pursuant to which amounts may be
advanced to the borrower by the lender from time to time. Collection on these
types of mortgage loans may vary because, among other things, (1) borrowers may
make payments during any month as low as the minimum monthly payment for such
month, or just the interest and fees for such month during any interest-only
period, or (2) borrowers may make payments as high as the entire outstanding
charges thereon. It is possible that borrowers may fail to make the required
periodic payment and, to the extent not covered by the credit enhancement, such
losses may adversely affect the yield to maturity on your certificates.
NON-CONFORMING LOANS. Approximately ___% of the mortgage loans by aggregate
principal balance as of ________________ are non-conforming mortgage loans.
Non-conforming mortgage loans are mortgage loans
S-9
<PAGE>
that do not qualify for purchase by government sponsored agencies such as Fannie
Mae and Freddie Mac due to credit characteristics that to not satisfy such
Fannie Mae and Freddie Mac guidelines, including mortgagors whose
creditworthiness and repayment ability do not satisfy such Fannie Mae and
Freddie Mac underwriting guidelines and mortgagors who may have a record of
credit write-offs, outstanding judgments, prior bankruptcies and other
derogatory credit items. Accordingly, non-conforming mortgage loans are likely
to experience rates of delinquency, foreclosure and loss that are higher, and
that may be substantially higher, than mortgage loans originated in accordance
with Fannie Mae or Freddie Mac underwriting guidelines. The principal
differences between conforming mortgage loans and non-conforming mortgage loans
include the applicable loan-to-value ratios, the credit and income histories of
the related mortgagors, the documentation required for approval of the related
mortgage loans, the types of properties securing the mortgage loans, the loan
sizes and the mortgagors' occupancy status with respect to the mortgaged
properties. As a result of these and other factors, the interest rates charged
on non-conforming mortgage loans are often higher than those charged for
conforming mortgage loans. The combination of different underwriting criteria
and higher rates of interest may also lead to higher delinquency, foreclosure
and losses on non-conforming mortgage loans as compared to conforming mortgage
loans.
JUNIOR LIEN MORTGAGE LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________ are mortgage loans secured by
junior liens and with respect to approximately ___% of such junior liens, the
related senior liens are not included in the trust fund. The primary risk to
holders of mortgage loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior liens to satisfy fully both the senior liens and the junior lien
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the mortgage loan, if such proceeds are sufficient, before the trust fund as
holder of the junior lien receives any payments in respect of the mortgage loan.
If the master servicer were to foreclose on any junior lien mortgage loan, it
would do so subject to any related senior liens. In order for the debt related
to the mortgage loan to be paid in full at such sale, a bidder at the
foreclosure sale of a junior lien mortgage loan would have to bid an amount
sufficient to pay off all sums due under the junior lien mortgage loan and the
senior liens or purchase the mortgaged property subject to the senior liens. In
the event that such proceeds from a foreclosure or similar sale of the related
mortgaged property are insufficient to satisfy all senior liens and the mortgage
loan in the aggregate, the trust fund, as the holder of the junior lien, and,
accordingly, holders of the certificates bear (a) the risk of delay in
distributions while a deficiency judgment against the borrower is obtained and
(b) the risk of loss if the deficiency judgment is not realized upon. Moreover,
deficiency judgments may not be available in certain jurisdictions. In addition,
a junior mortgagee may not foreclose on the property securing a junior mortgage
unless it forecloses subject to the senior mortgages.
Liquidation expenses with respect to defaulted junior mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that the master servicer took the same steps in
realizing upon a defaulted junior mortgage loan having a small remaining
principal balance as it would in the case of a defaulted junior mortgage loan
having a large remaining principal balance, the amount realized after expenses
of liquidation would be smaller as a percentage of the outstanding principal
balance of the small junior mortgage loan than would be the case with the
defaulted junior mortgage loan having a large remaining principal balance.
Because the average outstanding principal balance of the junior lien mortgage
loans is smaller relative to the size of the average outstanding principal
balance of the loans in a typical pool of first priority mortgage loans,
liquidation proceeds may also be smaller as a percentage of the principal
balance of a mortgage loan than would be the case in a typical pool of first
priority mortgage loans.
S-10
<PAGE>
An overall decline in the residential real estate market could adversely
affect the values of the mortgaged properties securing the mortgage loans with
junior liens such that the outstanding principal balances, together with any
senior financing thereon, exceeds the value of the mortgaged properties. Since
mortgage loans secured by junior liens are subordinate to the rights of the
beneficiaries under the related senior deeds of trust or senior mortgages, such
a decline would adversely affect the position of the related junior beneficiary
or junior mortgagee before having such an effect on the position of the related
senior beneficiaries or senior mortgagees. A rise in interest rates over a
period of time, the general condition of the mortgaged property and other
factors may also have the effect of reducing the value of the mortgaged property
from the value at the time the junior lien mortgage loan was originated. As a
result, the loan-to-value ratio may exceed the ratio in effect at the time the
mortgage loan was originated. Such an increase may reduce the likelihood that,
in the event of a default by the related mortgagor, liquidation or other
proceeds will be sufficient to satisfy the junior lien mortgage loan after
satisfaction of any senior liens and the payment of any liquidation expenses.
Other factors may affect the prepayment rate of junior lien mortgage loans,
such as the amounts of, and interest on, the related senior mortgage loans and
the use of senior lien mortgage loans as long-term financing for home purchases
and junior lien mortgage loans as shorter-term financing for a variety of
purposes, such as home improvement, educational expenses and purchases of
consumer durable such as automobiles. Accordingly, junior lien mortgage loans
may experience a higher rate of prepayments than traditional senior lien
mortgage loans. In addition, any future limitations on the rights of borrowers
to deduct interest payments on junior lien mortgage loans for federal income tax
purposes may further increase the rate of prepayments on such junior lien
mortgage loans.
PUERTO RICO AND GUAM LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________, are mortgage loans secured
by properties located in Puerto Rico and Guam. The risk of loss on mortgage
loans secured by properties located in Puerto Rico and Guam may be greater than
on mortgage loans that are made to mortgagors who are United States residents
and citizens or that are secured by properties located in the United States. In
particular, the procedure for the foreclosure of a real estate mortgage under
the laws of the Commonwealth of Puerto Rico varies from the procedures generally
applicable in each of the fifty states of the United States which may affect the
satisfaction of the related mortgage loan. In addition, the depositor is not
aware of any historical prepayment experience with respect to mortgage loans
secured by properties located in Puerto Rico or Guam and, accordingly,
prepayments on such loans may not occur at the same rate or be affected by the
same factors as other mortgage loans.
MORTGAGE LOANS WITH HIGH LOAN-TO-VALUE RATIOS. Approximately _____% of the
mortgage loans, by aggregate principal balance as of _______ __, ____, had a
loan-to-value ratio (or a combined loan-to-value ratio, in the case of any
second lien mortgage loan) at origination in excess of 80%. No mortgage loan in
the mortgage pool with a loan-to-value ratio (or a combined loan-to-value ratio,
in the case of any second lien mortgage loan) at origination in excess of 80%
will be covered by a primary mortgage insurance policy. No first lien mortgage
loan will have a loan-to-value ratio exceeding __% at origination and no second
lien mortgage loan will have a combined loan-to-value ratio exceeding _____% at
origination. Mortgage loans with higher loan-to-value ratios may present a
greater risk of loss in that an overall decline in the residential real estate
market, a rise in interest rates over a period of time and the general condition
of a mortgaged property, as well as other factors, may have the effect of
reducing the value of such mortgaged property from the appraised value at the
time the mortgage loan was originated. If there is a reduction in value of the
mortgaged property, the loan-to-value ratio may increase over what it was at the
time the mortgage loan was originated. Such an increase may reduce the
likelihood of liquidation or other proceeds being sufficient to satisfy the
mortgage loan and any losses, to the extent not covered by the credit
enhancement, may affect the yield to maturity or your certificates. There can be
no assurance that the loan-to-value ratio of any mortgage loan determined at any
time after origination is less than or equal to its original loan-to-value
ratio.
S-11
<PAGE>
MORTGAGE LOANS THAT ARE DELINQUENT AS OF THE CUT-OFF DATE. Approximately
____% of the mortgage loans, by aggregate principal balance as of _______ __,
____, were thirty days or more but less than sixty days delinquent in their
monthly payments as of ______ __, ____. Approximately ____% of the mortgage
loans, by aggregate principal balance as of _______ __, ____, were sixty days or
more but less than ninety days delinquent in their monthly payments as of the
_______ __, ____. However, investors in the mortgage loans should realize that
approximately _____% of the mortgage loans, by aggregate principal balance as of
_______ __, ____, have a first payment date occurring on or after _______ __,
____ and, therefore, such mortgage loans could not have been delinquent as of
_______ __, ____].
[THE CERTIFICATES ARE OBLIGATIONS OF THE TRUST ONLY
The certificates will not represent an interest in or obligation of the
depositor, the master servicer, the mortgage loan seller, the trustee or any of
their respective affiliates. Neither the certificates nor the underlying
mortgage loans will be guaranteed or insured by any governmental agency or
instrumentality, or by the depositor, the master servicer, the trustee or any of
their respective affiliates. Proceeds of the assets included in the trust will
be the sole source of payments on the offered certificates, and there will be no
recourse to the depositor, the master servicer, the mortgage loan seller, the
trustee or any other entity in the event that such proceeds are insufficient or
otherwise unavailable to make all payments provided for under the offered
certificates].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES WILL
BE AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the Class A
Certificates will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on such certificates as provided in this prospectus supplement. The rate and
timing of distributions allocable to principal on the other classes of offered
certificates, other than the Class XS Certificates, will depend in general, on
the rate and timing of principal payments (including prepayments and collections
upon defaults, liquidations and repurchases) on all of the mortgage loans and
the allocation thereof to pay principal on such certificates as provided in this
prospectus supplement. As is the case with mortgage pass-through certificates
generally, the offered certificates are subject to substantial inherent
cash-flow uncertainties because the mortgage loans may be prepaid at any time.
However, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of ________ __, ____, a prepayment may subject
the related mortgagor to a prepayment charge, which may act as a deterrent to
prepayment of such mortgage loan. SEE "THE MORTGAGE POOL" IN THIS PROSPECTUS
SUPPLEMENT.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease. A decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of principal to investors
in the Class A Certificates at a time when reinvestment at such higher
prevailing rates would be desirable. A decrease in the prepayment rates on all
of the mortgage loans will result in a reduced rate of return of principal to
investors in the other classes of offered certificates, other than the Class XS
Certificates, at a time when reinvestment at such higher prevailing rates would
be desirable.
Conversely, when prevailing interest rates are declining, prepayment rates
on mortgage loans tend to increase. An increase in the prepayment rates on the
mortgage loans will result in a greater rate of return of principal to investors
in the related Class A Certificates, at time when reinvestment at comparable
yields may not be possible. An increase in the prepayment rates on all of the
mortgage loans will result in a greater rate of return of principal to investors
in the other classes of offered certificates, other than the Class XS
Certificates, at a time when reinvestment at comparable yields may not be
possible.
S-12
Prior to the distribution date in _______ ____, the Subordinate
Certificates will be entitled to receive distributions allocable to principal
based on a disproportionately small percentage of principal prepayments on the
mortgage loans, and the Class A Certificates will be entitled to receive
distributions allocable to principal based on a disproportionately large
percentage (which may be 100%) of principal prepayments on the mortgage loans.
To the extent that no principal prepayments or a disproportionately small
percentage of such prepayments are distributed on the Subordinate Certificates,
the subordination afforded to the Class A Certificates, in the absence of losses
allocated to such certificates, will be increased.
FOR FURTHER INFORMATION REGARDING THE EFFECT OF PRINCIPAL PREPAYMENTS ON
THE WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES, SEE "YIELD ON THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT, INCLUDING THE TABLE ENTITLED
"PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF THE PREPAYMENT ASSUMPTION"].
[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON A VARIETY OF
FACTORS
The yield to maturity on the offered certificates, particularly the Class
XS Certificates, will depend, in general, on:
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
related mortgage loans and the allocation thereof to reduce the
certificate principal balance or notional amount of such
certificates, as well as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered certificates, other than the Class XS
Certificates, are purchased at a premium and principal distributions thereon
occur at a rate faster than anticipated at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase. Conversely, if the offered certificates, other than the Class XS
Certificates, are purchased at a discount and principal distributions thereon
occur at a rate slower than that anticipated at the time of purchase, the
investor's actual yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered certificates
were determined based on a number of assumptions, including a prepayment
assumption of ____% of the standard prepayment assumption, and weighted average
lives corresponding thereto. No representation is made that the mortgage loans
will prepay at such rate or at any other rate, or that the mortgage loans will
prepay at the same rate. The yield assumptions for the offered certificates will
vary as determined at the time of sale. SEE "YIELD ON THE CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT].
[THE MULTIPLE CLASS STRUCTURE OF THE OFFERED CERTIFICATES CAUSES THE YIELD OF
CERTAIN CLASSES TO BE PARTICULARLY SENSITIVE TO CHANGES IN THE RATES OF
PREPAYMENT OF THE RELATED MORTGAGE LOANS AND OTHER FACTORS
CLASS XS CERTIFICATES: The Class XS Certificates will receive a portion of
the interest payments ONLY from mortgage loans that have net mortgage rates
higher than ____%. Therefore, the yield on the Class XS Certificates will be
extremely sensitive to the rate and timing of principal prepayments and defaults
S-13
<PAGE>
on such mortgage loans. Investors in the Class XS Certificates should be aware
that mortgage loans with higher mortgage rates may prepay faster than mortgage
loans with lower mortgage rates. If the mortgage loans that have net mortgage
rates higher than ____% are prepaid at a rate faster than an investor assumed at
the time of purchase, the yield to investors in the Class XS Certificates will
be adversely affected. Investors in the Class XS Certificates should fully
consider the risk that a rapid rate of prepayments on the mortgage loans that
have net mortgage rates higher than ____% could result in the failure of such
investors to fully recover their investments.
SUBORDINATE CERTIFICATES: The weighted average lives of, and the yield to
maturity on, the Class B-1 Certificates, the Class B-2 Certificates and the
Class B-3 Certificates will be progressively more sensitive, in increasing order
of their numerical class designations, to losses due to defaults on the mortgage
loans (and the timing thereof), to the extent such losses are not covered by
subordinate certificates with a higher numerical class designation (including
covered by the Class B-4, Class B-5 and Class B-6 Certificates which are not
offered hereby). Furthermore, as described in this prospectus supplement, the
timing of receipt of principal and interest by any class of subordinate
certificates may be adversely affected by losses even if such class does not
ultimately bear such loss].
[THE RESIDUAL CERTIFICATES WILL RECEIVE LIMITED DISTRIBUTIONS OF PRINCIPAL AND
INTEREST AND MAY HAVE SIGNIFICANT TAX LIABILITIES
Holders of the Class R Certificates are entitled to receive distributions
of principal and interest as described in this prospectus supplement, but the
holders of such certificates are not expected to receive any distributions after
the first distribution date. In addition, holders of such certificates will have
tax liabilities with respect to their certificates during the early years of the
term of the trust that substantially exceed the principal and interest payable
thereon during or prior to such periods. SEE "--FEDERAL INCOME TAX CONSEQUENCES"
BELOW, "YIELD ON THE CERTIFICATES--ADDITIONAL YIELD CONSIDERATIONS APPLICABLE
SOLELY TO THE RESIDUAL CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL
INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS].
<PAGE>
[VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
Applicable state laws generally regulate interest rates and other
charges, require certain disclosure, and require licensing of the Originator. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers
regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
and
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the Originator
to damages and administrative enforcement.
The Originator will represent that as of the closing date, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of such representation, it will be obligated to cure such
breach or repurchase or replace the affected mortgage loan in the manner
described in the prospectus].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE MASTER SERVICER TO
PERFORM ITS DUTIES
As is the case with most companies using computers in their operations, the
master servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the master servicer's computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. Any such occurrence could result in major computer
system failure or miscalculations. The master servicer is presently engaged in
various procedures to ensure that its computer systems and software will be year
2000 compliant. However, in the event that the master servicer, or any of its
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the performance of obligations of the master servicer
under the pooling and servicing agreement could be materially adversely
affected].
Capitalized terms used but not defined in this prospectus supplement have the
meanings assigned to them in the prospectus. An Index of Principal Definitions
is included at the end of the prospectus.
S-15
<PAGE>
THE MORTGAGE POOL
GENERAL
References to percentages of the Mortgage Loans unless otherwise noted are
calculated based on the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date.
The pool of Mortgage Loans (the "Mortgage Pool") will consist of
approximately _____ conventional, one- to four-family, fixed-rate,
fully-amortizing mortgage loans (the "Mortgage Loans") secured by first liens on
residential real properties (the "Mortgaged Properties") and having an aggregate
principal balance as of ________ __, ____ (the "Cut-off Date") of approximately
$___________, after application of scheduled payments due on or before the
Cut-off Date whether or not received and subject to a permitted variance of plus
or minus __%. The Mortgage Loans have original terms to maturity of not greater
than [30] years.
The Mortgage Loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties consisting of one- to four-family dwelling units,
townhouses, individual condominium units and individual units in planned unit
developments. The Mortgage Loans to be included in the Mortgage Pool will be
acquired by the Depositor from the Mortgage Loan Seller. See "--Underwriting
Standards; Representations" in this prospectus supplement. The Mortgage Loan
Seller will act as the master servicer for the Mortgage Loans originated by it
pursuant to the Agreement (in such capacity, the "Master Servicer").
All of the Mortgage Loans have scheduled monthly payments due on the first
day of the month (with respect to each Mortgage Loan, a "Due Date"). Each
Mortgage Loan will contain a customary "due-on-sale" clause.
Approximately _____% of the Mortgage Loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Mortgage Loan provides for payment of a
prepayment charge on certain partial or full prepayments made within one year,
five years or such other period as provided in the related Mortgage Note from
the date of origination of such Mortgage Loan. The amount of the prepayment
charge is as provided in the related Mortgage Note, and such prepayment charge
will generally apply if, in any twelve-month period during the first year, five
years or such other period as provided in the related Mortgage Note from the
date of origination of such Mortgage Loan, the Mortgagor prepays an aggregate
amount exceeding __% of the original principal balance of such Mortgage Loan.
With respect to _____% of such Mortgage Loans, the amount of the prepayment
charge will generally be equal to ___ months' advance interest calculated on the
basis of the Mortgage Rate in effect at the time of such prepayment on the
amount prepaid in excess of __% of the original principal balance of such
Mortgage Loan for a period of five years and one year, respectively. The
_____________ will be entitled to all prepayment charges received on the
Mortgage Loans, and such amounts will not be available for distribution on the
Certificates. The Master Servicer may, in its discretion, waive the collection
of any otherwise applicable prepayment charge or reduce the amount thereof
actually collected, and accordingly, there can be no assurance that the
prepayment charges will have any effect on the prepayment performance of the
Mortgage Loans.
The average principal balance of the Mortgage Loans at origination was
approximately $______. No Mortgage Loan had a principal balance at origination
of greater than approximately $_______ or less than approximately $______. The
average principal balance of the Mortgage Loans as of the Cut-off Date was
approximately $______. No Mortgage Loan had a principal balance as of the
Cut-off Date of greater than approximately $_______ or less than approximately
$______.
S-16
<PAGE>
As of the Cut-off Date, the Mortgage Loans had Mortgage Rates ranging from
approximately _____% per annum to approximately ______% per annum and the
weighted average Mortgage Rate was approximately _____% per annum. The weighted
average remaining term to stated maturity of the Mortgage Loans will be
approximately __ years and __ months as of the Cut-off Date. None of the
Mortgage Loans will have a first Due Date prior to ________ ____ or after
_________ ____, or will have a remaining term to maturity of less than __ years
and __ months or greater than __ years as of the Cut-off Date. The latest
maturity date of any Mortgage Loan is ________ ____.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans was approximately ______%. No Loan-to-Value Ratio at origination was
greater than approximately _____% or less than approximately ____%.
The Mortgage Loans are expected to have as of the Cut-off Date the
following characteristics listed on Appendix A hereto.
UNDERWRITING STANDARDS; REPRESENTATIONS
All of the Mortgage Loans were originated by ________________ (in such
capacity, the "Mortgage Loan Seller"), generally in accordance with the
underwriting criteria specified in the prospectus, except as described in this
prospectus supplement. [Description of differences with prospectus description
under the heading "Underwriting Standards; Representations"].
ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described in this prospectus supplement.
The Depositor believes that the information set forth in this prospectus
supplement will be representative of the characteristics of the Mortgage Pool as
it will be constituted at the time the Certificates are issued, although the
range of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans may vary.
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the Offered Certificates of each class
will be less than the yields otherwise produced by their respective Pass-Through
Rates and purchase prices because (i) on the first Distribution Date one month's
interest is payable thereon even though __ days will have elapsed from the date
on which interest begins to accrue thereon, (ii) on each succeeding Distribution
Date the interest payable thereon is the interest accrued during the month
preceding the month of such Distribution Date, which ends __ days prior to such
Distribution Date and (iii) during each Interest Accrual Period (other than the
first Interest
S-18
<PAGE>
Accrual Period), interest accrues on a Certificate Principal Balance or Notional
Amount that is less than the Certificate Principal Balance or Notional Amount of
such class actually outstanding for the first __ days of such Interest Accrual
Period.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is not charged interest on the amount of such prepayment for the month
in which such prepayment is made. In addition, the application of the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), to any
Mortgage Loan will adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on such
Mortgage Loan. See "Certain Legal Aspects of the Mortgage Loans--Soldiers' and
Sailors' Civil Relief Act of 1940" in the prospectus. The Master Servicer is
obligated to pay from its own funds only those interest shortfalls attributable
to full and partial prepayments by the mortgagors on the Mortgage Loans master
serviced by it, but only to the extent of its aggregate Servicing Fee for the
related Due Period. See "Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
Accordingly, the effect of (i) any principal prepayments on the Mortgage Loans,
to the extent that any resulting shortfall (a "Prepayment Interest Shortfall")
exceeds any payments made by the Master Servicer from its own funds
("Compensating Interest") or (ii) any shortfalls resulting from the application
of the Relief Act, will be to reduce the aggregate amount of interest collected
that is available for distribution to holders of the Certificates. Any such
shortfalls will be allocated among the Certificates as provided in this
prospectus supplement under "Description of the Certificates--Interest
Distributions".
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on each class of Offered Certificates (other
than the Class XS Certificates), the aggregate amount of distributions on each
class of Offered Certificates and the yield to maturity of each class of Offered
Certificates will be related to the rate and timing of payments of principal on
the Mortgage Loans. The rate of principal payments on the Mortgage Loans will in
turn be affected by the amortization schedules of such Mortgage Loans and by the
rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings, liquidations of the Mortgage Loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
Depositor, the Mortgage Loan Seller, the Originator or the Master Servicer, as
the case may be). The Mortgage Loans generally may be prepaid by the mortgagors
at any time; however, as described under "The Mortgage Pool" in this prospectus
supplement, with respect to approximately _____% of the Mortgage Loans, by
aggregate principal balance as of the Cut-off Date, a prepayment may subject the
related mortgagor to a prepayment charge. All of the Mortgage Loans contain
due-on-sale clauses. As described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" in this
prospectus supplement, prior to the Distribution Date in ________ ____, all
principal prepayments on the Mortgage Loans will be allocated to the Senior
Certificates (other than the Class XS Certificates). Thereafter, as further
described in this prospectus supplement, during certain periods, subject to
certain loss and delinquency criteria described in this prospectus supplement,
the Senior Prepayment Percentage may continue to be disproportionately large
(relative to the Senior Percentage) and the percentage of principal prepayments
payable to the Subordinate Certificates may continue to be disproportionately
small.
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in distributions in respect of principal to the holders of the class or classes
of Offered Certificates then entitled to receive such distributions that
otherwise would be distributed over the remaining terms of the Mortgage Loans.
See "Maturity and Prepayment Considerations" in the prospectus. Since the rates
of payment of principal on the Mortgage Loans will depend on future events and a
variety of factors (as described more fully in this prospectus supplement
S-19
<PAGE>
and in the prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments. The extent to which the yield to maturity of any class of
Offered Certificates (other than the Class XS Certificates) may vary from the
anticipated yield will depend upon the degree to which they are purchased at a
discount or premium and the degree to which the timing of payments thereon is
sensitive to prepayments on the Mortgage Loans. Further, an investor should
consider, in the case of any such Certificate purchased at a discount, the risk
that a slower than anticipated rate of principal payments on the Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any such Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. In general, the earlier a prepayment of principal on the
Mortgage Loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of such Certificates would
not be fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
The yield to maturity on the Class XS Certificates will be extremely
sensitive to prepayments on the Mortgage Loans generally, and most sensitive to
prepayments on Mortgage Loans with relatively high Mortgage Rates. See "--Yield
Sensitivity of the Class XS Certificates" in this prospectus supplement.
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate. Moreover, the timing of prepayments on the Mortgage Loans may
significantly affect the actual yield to maturity on the Offered Certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
Because principal distributions are paid to certain classes of Offered
Certificates before other such classes, holders of classes of Offered
Certificates having a later priority of payment bear a greater risk of losses
(because such Certificates will represent an increasing percentage interest in
the Trust Fund during the period prior to the commencement of distributions of
principal thereon) than holders of classes having earlier priorities for
distribution of principal. In particular with respect to the Lockout
Certificates, as described under "Description of the Certificates--Principal
Distributions on the Senior Certificates" in this prospectus supplement, during
certain periods, no principal payments or a disproportionately small portion of
the Senior Principal Distribution Amount will be distributed on the Lockout
Certificates, and during certain other periods, a disproportionately large
portion of the Senior Principal Distribution Amount will be distributed on the
Lockout Certificates. Unless the Certificate Principal Balances of the Class A
Certificates (other than the Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal payments prior to the Distribution Date in ________ ____.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of the Certificates. See
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years. In addition, default rates generally are higher
for mortgage loans used to refinance an existing mortgage loan. In the event of
a mortgagor's default on a Mortgage Loan, there can be no assurance that
recourse beyond the
S-19
<PAGE>
specific Mortgaged Property pledged as security for repayment will be available.
See "The Mortgage Pool--Underwriting Standards; Representations" in this
prospectus supplement.
MARKET INTEREST RATE AND SUBORDINATION YIELD CONSIDERATIONS
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Offered Certificates (other than the Class XS Certificates) are fixed,
such rates will not change in response to changes in market interest rates.
Accordingly, if mortgage market interest rates or market yields for securities
similar to such Offered Certificates were to rise, the market value of such
Offered Certificates may decline.
As described under "Description of the Certificates--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Certificates may be made available to protect the holders of the Senior
Certificates against interruptions in distributions due to certain mortgagor
delinquencies, to the extent not covered by P&I Advances, and amounts otherwise
distributable to holders of the Subordinate Certificates with a higher numerical
class designation may be made available to protect the holders of Subordinate
Certificates with a lower numerical class designation against such interruptions
in distributions. Such delinquencies may affect the yield to investors on such
classes of the Subordinate Certificates, and, even if subsequently cured, will
affect the timing of the receipt of distributions by the holders of such classes
of Subordinate Certificates. In addition, a larger than expected rate of
delinquencies or losses will affect the rate of principal payments on each class
of the Subordinate Certificates if it delays the scheduled reduction of the
Senior Prepayment Percentage, triggers an increase of the Senior Prepayment
Percentage to [100]% or triggers a lockout of one or more classes of Subordinate
Certificates from distributions of certain portions of the Subordinate Principal
Distribution Amount. See "Description of the Certificates--Principal
Distributions on the Senior Certificates" and "--Principal Distributions on the
Subordinate Certificates" in this prospectus supplement.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of the
Offered Certificates of each class will be influenced by the rate at which
principal on the Mortgage Loans is paid, which may be in the form of scheduled
payments or prepayments (including prepayments of principal by the mortgagor as
well as amounts received by virtue of condemnation, insurance or foreclosure
with respect to the Mortgage Loans), and the timing thereof.
Except as otherwise described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" in this
prospectus supplement, distributions of principal will be made to the classes of
Class A Certificates according to the priorities described in this prospectus
supplement, rather than on a PRO RATA basis among such classes, unless the
Certificate Principal Balances of the Subordinate Certificates have been reduced
to zero. The timing of commencement of principal distributions to each class of
the Class A Certificates and the weighted average life of each such class will
be affected by the rates of prepayment on the Mortgage Loans experienced both
before and after the commencement of principal distributions on each such class.
Moreover, because the Lockout Certificates do not receive (unless the
Certificate Principal Balances of the Class A Certificates, other than the
Lockout Certificates, have been reduced to zero) any portion of principal
payments prior to the Distribution Date occurring in ________ ____ and
thereafter will receive (unless the Certificate Principal Balances of the Class
A Certificates, other than the Lockout Certificates, have been reduced to zero)
a disproportionately small or large portion of principal payments, the weighted
average life of the Lockout Certificates will be longer or shorter than would
otherwise be the case, and the effect on the market value of the Lockout
Certificates of changes in market interest rates or market yields for similar
securities may be greater or lesser than for the other classes of Class A
Certificates entitled to principal distributions.
S-20
<PAGE>
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement (the
"Prepayment Assumption") assumes a prepayment rate for the Mortgage Loans of
___% of the Prepayment Vector. A ___% Prepayment Vector assumes that the
outstanding balance of a pool of mortgage loans prepays at a rate of ____% CPR
in the first month of the life of such pool, such rate increasing by an
additional approximate ____% CPR (precisely __/__, expressed as a percentage)
each month thereafter through the eleventh month of the life of such pool, and
such rate thereafter remaining constant at __% CPR for the remainder of the life
of such pool. An __% Prepayment Vector assumes, for example, that the
outstanding balance of a pool of mortgage loans prepays at a rate of ____% CPR
in the first month of the life of such pool, such rate increasing by an
additional approximate ____% CPR (precisely _____/__, expressed as a percentage)
each month thereafter through the ________ month of the life of such pool, and
such rate thereafter remaining constant at __% CPR for the remainder of the life
of such pool. No representation is made that the Mortgage Loans in the Mortgage
Pool will prepay at the above-described rates or any other rate. CPR refers to
the Constant Prepayment Rate model, which assumes that the outstanding principal
balance of a pool of mortgage loans prepays at a specified constant annual rate
or CPR. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate. To assume __% CPR or any other CPR percentage
is to assume that the stated percentage of the outstanding principal balance of
the pool is prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial Certificate Principal Balance of the indicated classes of Certificates
that would be outstanding after each of the dates shown at various constant
percentages of the Prepayment Assumption and the corresponding weighted average
life of such class of Certificates. The table is based on the following
assumptions (the "Modeling Assumptions"): (i) the Mortgage Pool consists of ____
Mortgage Loans with the characteristics set forth in the table below, (ii)
distributions on such Certificates are received, in cash, on the __th day of
each month, commencing in ________ ____, (iii) the Mortgage Loans prepay at the
constant percentages of the Prepayment Assumption indicated, (iv) no defaults or
delinquencies occur in the payment by mortgagors of principal and interest on
the Mortgage Loans and no shortfalls due to the application of the Relief Act
are incurred, (v) none of the Depositor, the Mortgage Loan Seller, the
Originator, the Master Servicer or any other person purchases from the Trust
Fund any Mortgage Loan pursuant to any obligation or option under the Agreement
(except as indicated in footnote (2) in the tables), (vi) scheduled monthly
payments on the Mortgage Loans are received on the first day of each month
commencing in ________ ____, and are computed prior to giving effect to any
prepayments received in the prior month, (vii) prepayments representing payment
in full of individual Mortgage Loans are received on the last day of each month
commencing in _______ ____, and include 30 days' interest thereon, (viii) the
scheduled monthly payment for each Mortgage Loan is calculated based on its
principal balance, Mortgage Rate and remaining term to maturity such that the
Mortgage Loan will amortize in amounts sufficient to repay the remaining
principal balance of such Mortgage Loan by its remaining term to maturity, (ix)
the Certificates are purchased on _______ __, ____ and (x) the Servicing Fee
Rate is ____% per annum and the Trustee's Fee Rate is _____% per annum.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE ORIGINAL TERM REMAINING TERM
AS OF THE MORTGAGE TO MATURITY TO MATURITY
CUT-OFF DATE RATE (MONTHS) (MONTHS)
------------ ---- -------- --------
$ %
$ %
$ %
$ %
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the table below. Any
such discrepancy may have an effect upon the percentages of the initial
S-21
<PAGE>
Certificate Principal Balances outstanding (and the weighted average lives) of
the classes of Certificates set forth in the table. In addition, to the extent
that the actual Mortgage Loans included in the Mortgage Pool have
characteristics that differ from those assumed in preparing the table below,
such classes of Certificates may mature earlier or later than indicated by the
table below. Based on the foregoing assumptions, the table below indicates the
weighted average life of each class of the Class A Certificates and the
Subordinate Certificates and sets forth the percentage of the initial
Certificate Principal Balance of each such class of Certificates that would be
outstanding after each of the dates shown, at various percentages of the
Prepayment Assumption. Neither the prepayment model used in this prospectus
supplement nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans included in the Trust Fund. Variations in the prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentages of initial Certificate Principal Balance (and weighted
average lives) shown in the following table. Such variations may occur even if
the average prepayment experience of all such Mortgage Loans equals any of the
specified percentages of the Prepayment Assumption.
S-22
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
---------------------- ----------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ---- -- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...................................
...................................
...................................
Weighted Average Life
in Years(1).................
Weighted Average Life
in Years(2).................
</TABLE>
CLASS A-3 CERTIFICATES
----------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ----
...................................
...................................
...................................
Weighted Average Life
in Years(1).................
Weighted Average Life
in Years(2).................
- -----------------
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from
the date of issuance of the Certificate to the related Distribution Date,
(b) adding the results and (c) dividing the sum by the initial Certificate
Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the Mortgage Loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-4 CERTIFICATES CLASS A-5 CERTIFICATES
---------------------- ----------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- --------- -- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...................................
...................................
...................................
Weighted Average Life
in Years(1).................
Weighted Average Life
in Years(2).................
</TABLE>
- -----------------
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from
the date of issuance of the Certificate to the related Distribution Date,
(b) adding the results and (c) dividing the sum by the initial Certificate
Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the Mortgage Loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
(TABLE CONTINUED ON NEXT PAGE.)
s-23
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-6 CERTIFICATES SUBORDINATE CERTIFICATES
---------------------- ----------- ------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ---- -- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...................................
...................................
...................................
Weighted Average Life
in Years(1).................
Weighted Average Life
in Years(2).................
</TABLE>
- -----------------
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from
the date of issuance of the Certificate to the related Distribution Date,
(b) adding the results and (c) dividing the sum by the initial Certificate
Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the Mortgage Loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
s-24
<PAGE>
There is no assurance that prepayments of the Mortgage Loans will conform
to any of the levels of the Prepayment Assumption indicated in the table above
or to any other level, or that the actual weighted average life of any class of
Certificates will conform to any of the weighted average lives set forth in the
table above. Furthermore, the information contained in the table with respect to
the weighted average life of each specified class of Certificates is not
necessarily indicative of the weighted average life of each such class that
might be calculated or projected under different or varying prepayment
assumptions.
The characteristics of the Mortgage Loans will differ from those assumed in
preparing the table above. In addition, it is unlikely that any Mortgage Loan
will prepay at any constant percentage of the Prepayment Assumption until
maturity or that all of the Mortgage Loans will prepay at the same rate. The
timing of changes in the rate of prepayments may significantly affect the actual
yield to maturity to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE CLASS XS CERTIFICATES
The yield to maturity of the Class XS Certificates will be extremely
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments on the Mortgage Loans will have a materially negative effect
on the yield to maturity of the Class XS Certificates, and principal prepayments
on Mortgage Loans with higher Mortgage Rates will have a greater negative impact
on the yield to maturity of the Class XS Certificates than principal prepayments
on Mortgage Loans with lower Mortgage Rates. There can be no assurance that the
Mortgage Loans will prepay at any particular rate. Prospective investors in the
Class XS Certificates should fully consider the associated risks, including the
risk that such investors may not fully recover their initial investment.
The following table indicates the sensitivity of the yield of the Class XS
Certificates to various rates of prepayment on the Mortgage Loans and the
corresponding pre-tax yield on a corporate bond equivalent basis. The table set
forth below has been prepared based on the Modeling Assumptions.
<TABLE>
<CAPTION>
PRE-TAX YIELD TO MATURITY ON THE CLASS XS CERTIFICATES
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
ASSUMED AGGREGATE PERCENTAGES OF THE PREPAYMENT ASSUMPTION
PURCHASE PRICE
--------------
0% 25% 50% 75% 100% 125% 150%
-- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % 7.96% 1.90% (4.35)%
</TABLE>
On the basis of a constant prepayment rate of approximately ___% of the
Prepayment Assumption and the purchase price assumed above, the yield to
maturity of the Class XS Certificates would be approximately __%. If the actual
prepayment rate were to exceed such rate, initial investors in the Class XS
Certificates would not fully recover their initial investment.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the Class XS Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase price of such Class XS Certificates, and by converting such
monthly rates to corporate bond equivalent rates. Such calculation does not take
into account shortfalls in collection of interest due to prepayments (or other
liquidations) on the Mortgage Loans or the interest rates at which investors may
be able to reinvest funds received by them as distributions on the Class XS
Certificates and consequently does not purport to reflect the return on any
investment in the Class XS Certificates when such reinvestment rates are
considered.
The characteristics of the Mortgage Loans will differ from those assumed in
preparing the table above. There can be no assurance that the cash flows on the
Class XS Certificates will correspond to those used to determine the pre-tax
yields shown above or that the aggregate purchase price of the Class XS
Certificates will be as assumed. It is unlikely that any Mortgage Loan will
prepay at the specified percentages of the
S-25
<PAGE>
Prepayment Assumption until maturity or that all of the Mortgage Loans will
prepay at the same rate. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
investors. The portion of interest payments on the Mortgage Loans distributable
to the Class XS Certificates will vary from Mortgage Loan to Mortgage Loan, and
will be greater with respect to Mortgage Loans with higher Mortgage Rates.
Accordingly, the yield on the Class XS Certificates will be lower than indicated
in the applicable table above with respect to any particular average prepayment
rate if Mortgage Loans with higher Mortgage Rates prepay faster than Mortgage
Loans with lower Mortgage Rates, assuming no variation in Mortgage Loan
principal balance. Moreover, the variable Pass-Through Rate on the Class XS
Certificates will generally decrease as the Certificate Principal Balances of
Class A Certificates with lower fixed Pass-Through Rates decline. There can be
no assurance that the Mortgage Loans will prepay at any of the rates shown in
the table or at any other particular rate, or that Mortgage Loans with
relatively high Mortgage Rates will prepay at the same rate as the Mortgage
Loans generally. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class XS
Certificates.
YIELD SENSITIVITY OF THE SUBORDINATE CERTIFICATES
If the Certificate Principal Balances of the Class B-6 Certificates, Class
B-5 Certificates, Class B-4 Certificates, Class B-3 Certificates and Class B-2
Certificates have been reduced to zero, the yield to maturity on the Class B-1
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof) that are covered by subordination, because the entire
amount of such losses will be allocated to the Class B-1 Certificates. If the
Certificate Principal Balances of the Class B-6 Certificates, Class B-5
Certificates, Class B-4 Certificates and Class B-3 Certificates have been
reduced to zero, the yield to maturity on the Class B-2 Certificates will become
extremely sensitive to losses on the Mortgage Loans (and the timing thereof)
that are covered by subordination, because the entire amount of such losses will
be allocated to the Class B-2 Certificates. If the Certificate Principal
Balances of the Class B-6 Certificates, Class B-5 Certificates and Class B-4
Certificates have been reduced to zero, the yield to maturity on the Class B-3
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof) that are covered by subordination, because the entire
amount of such losses will be allocated to the Class B-3 Certificates. The
initial undivided interest in the Trust Fund evidenced by the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the Class
B-4 Certificates, the Class B-5 Certificates and the Class B-6 Certificates is
approximately ____%, approximately ____%, approximately ____%, approximately
____%, approximately ____% and approximately ____%, respectively. Investors in
the Subordinate Certificates should fully consider the risk that Realized Losses
on the Mortgage Loans could result in the failure of such investors to fully
recover their investments. For additional considerations relating to the yield
on the Subordinate Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the prospectus.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The Certificateholders' after-tax rate of return on their Residual
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates will have tax liabilities with respect to their Residual
Certificates during the early years of the REMIC's term that substantially
exceed any distributions payable thereon during or prior to any such period. In
addition, holders of Residual Certificates will have tax liabilities with
respect to their Residual Certificates the present value of which substantially
exceeds the present value of distributions payable thereon and of any tax
benefits that may arise with respect thereto. Accordingly, the after-tax rate of
return on the Residual Certificates may be negative or may otherwise be
significantly adversely affected. The timing and amount of taxable income
attributable to the Residual Certificates will depend on, among other things,
the timing and amounts of prepayments and losses experienced with respect to the
Mortgage Pool.
The Residual Certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the transfer of the Residual Certificates on
S-26
after-tax rates of return on the Residual Certificates. See "Federal Income Tax
Consequences" in this prospectus supplement and in the prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series ____-___ Certificates will consist of ________ classes of
certificates (collectively, the "Certificates"), designated as: (i) the Class
A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates and the Class A-5 Certificates (the "Senior Sequential
Certificates"); (ii) the Class A-6 Certificates (the "Lockout Certificates", and
together with the Senior Sequential Certificates, the "Class A Certificates");
(iii) the Class XS Certificates (the Class A Certificates and the Class XS
Certificates, together, the "Senior Certificates"); (iv) the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the Class
B-4 Certificates, the Class B-5 Certificates and the Class B-6 Certificates
(collectively, the "Subordinate Certificates"); and (v) the Class R Certificates
(the "Residual Certificates"). Only the Senior Certificates, the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates and the
Residual Certificates (collectively, the "Offered Certificates") are offered
hereby.
The Certificates represent in the aggregate the entire beneficial ownership
interest in a Trust Fund (the "Trust Fund") consisting primarily of a segregated
pool (the "Mortgage Pool") of conventional, one- to four-family, fixed-rate,
fully-amortizing, first lien mortgage loans having original terms to maturity of
not greater than 30 years (the "Mortgage Loans") and an aggregate principal
balance as of _______ __, ____ (the "Cut-off Date"), after application of
scheduled payments due whether or not received, of approximately $___________,
subject to a permitted variance as described in this prospectus supplement under
"The Mortgage Pool".
Each class of the Offered Certificates will have the approximate initial
Certificate Principal Balance or Notional Amount, as applicable, as set forth on
the cover hereof and will have the Pass-Through Rate determined as provided
under "Summary of Prospectus Supplement--Pass-Through Rate" and "--Interest
Distributions" in this prospectus supplement. The Residual Certificates also
represent the right to receive additional distributions in respect of the Trust
Fund on any Distribution Date after all required payments of principal and
interest have been made on such date in respect of the other classes of
Certificates, although it is not anticipated that funds will be available for
any such additional distribution. The Class B-4 Certificates, Class B-5
Certificates and Class B-6 Certificates have in the aggregate an initial
Certificate Principal Balance of approximately $__________ and a fixed
Pass-Through Rate for each Distribution Date of ____% per annum. The Class B-4
Certificates, the Class B-5 Certificates and the Class B-6 Certificates, which
are not being offered hereby, will be sold by the Depositor to ________________
on the Closing Date.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants (Class A Certificates so issued,
maintained and transferred, the "Book-Entry Certificates") in minimum
denominations of $_____ and integral multiples of $____ in excess thereof. The
Class XS Certificates and the Subordinate Certificates will be issued in
registered, certificated form, in minimum percentage interests corresponding to
initial Certificate Principal Balances or notional amounts, as applicable, of
$______ and integral multiples of $_____ in excess thereof, except that one
Certificate of each such class may be issued evidencing an amount equal to
either (i) the sum of an otherwise authorized denomination thereof plus the
remainder of the aggregate initial Certificate Principal Balance or Notional
Amount, as applicable, for such class or (ii) such remainder. The Residual
Certificates will be offered in registered, certificated form, in minimum
denominations of $___ and integral multiples thereof.
The Book-Entry Certificates will initially be represented by one or more
global certificates registered in the name of a nominee of DTC (together with
any successor clearing agency selected by the Depositor, the "Clearing Agency"),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No person acquiring an interest in any
class of the Book-Entry Certificates (a "Certificate Owner") will be entitled to
receive a certificate representing such person's interest, except as set forth
below under "--Definitive Certificates". Unless and until Definitive
Certificates are issued under the limited circumstances described in this
prospectus supplement, all references to actions by
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Certificateholders with respect to the Book-Entry Certificates shall refer to
actions taken by DTC upon instructions from its Participants (as defined below),
and all references in this prospectus supplement to distributions, notices,
reports and statements to Certificateholders with respect to the Book-Entry
Certificates shall refer to distributions, notices, reports and statements to
DTC or CEDE, as the registered holder of the Book-Entry Certificates, for
distribution to Certificate Owners in accordance with DTC procedures. See
"--Registration of the Book-Entry Certificates" and "--Definitive Certificates"
in this prospectus supplement.
The Class XS Certificates, the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Residual Certificates and the
Definitive Certificates will be transferable and exchangeable at the offices of
the Trustee. The Subordinate Certificates and the Residual Certificates may not
be purchased by or transferred to a Plan (as defined herein) except upon
delivery of a certification of facts or an opinion of counsel, as provided in
this prospectus supplement. See "--Restrictions on Transfer of the Subordinate
Certificates and the Residual Certificates" and "ERISA Considerations" in this
prospectus supplement. Transfer of the Residual Certificates will be subject to
certain additional restrictions and transfer of the Residual Certificates to any
non-United States person will be prohibited, in each case as described under
"Federal Income Tax Consequences--Special Tax Considerations Applicable to
Residual Certificates" in this prospectus supplement and under "Federal Income
Tax Consequences--REMICs--Tax On Transfers of REMIC Residual Certificates to
Certain Organizations" and "--Taxation of Owners of Residual
Certificates--Noneconomic REMIC Residual Certificates" in the prospectus. No
service charge will be imposed for any registration of transfer or exchange, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
All distributions to holders of the Certificates, other than the final
distribution on any class of Certificates, will be made on each Distribution
Date by or on behalf of the Trustee to the persons in whose names such
Certificates are registered at the close of business on the related Record Date.
The "Record Date" for each Distribution Date (i) with respect to any Book-Entry
Certificate will be the close of business on the business day immediately
preceding such Distribution Date or (ii) with respect to any other class of
Certificates, including any Definitive Certificates, will be the close of
business on the last business day of the month preceding the month in which such
Distribution Date occurs. Such distributions will be made either (a) by check
mailed to the address of each such Certificateholder as it appears in the
Certificate Register or (b) upon written request to the Trustee at least five
business days prior to the relevant Record Date by any holder of Certificates
having an aggregate initial Certificate Principal Balance or Notional Amount, as
applicable, that is in excess of the lesser of (i) $5,000,000 or (ii) two-thirds
of the initial aggregate Certificate Principal Balance or Notional Amount, as
applicable, of such class of Certificates, by wire transfer in immediately
available funds to the account of such Certificateholder specified in the
request. The final distribution on any class of Certificates will be made in
like manner, but only upon presentment and surrender of such Certificates at the
corporate trust office of the Trustee or such other location specified in the
notice to Certificateholders of such final distribution.
REGISTRATION OF THE BOOK-ENTRY CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including the
Underwriter), banks, trust companies and clearing corporations. Indirect access
to the DTC system is also available to others such as banks, brokers, dealers,
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ("Indirect Participants").
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Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal of and interest on the Book-Entry Certificates from the Trustee
through DTC and DTC Participants. The Trustee will forward payments to DTC in
same day funds and DTC will forward such payments to Participants in next day
funds settled through the New York Clearing House. Each Participant will be
responsible for disbursing such payments to Indirect Participants or to
Certificate Owners. Unless and until Definitive Certificates are issued, it is
anticipated that the only Certificateholder of the Book-Entry Certificates will
be CEDE, as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Agreement and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess Definitive Certificates, the Rules provide a mechanism by which
Certificate Owners through their Participants and Indirect Participants will
receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and on behalf of certain banks, the ability of a
Certificate Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the absence of physical certificates for the
Book-Entry Certificates. In addition, under a book-entry format, Certificate
Owners may experience delays in their receipt of payments since distribution
will be made by the Trustee to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a
Certificateholder under the Agreement only at the direction of one or more
Participants to whose DTC account the Book-Entry Certificates are credited.
Additionally, under the Rules, DTC will take such actions with respect to
specified Voting Rights only at the direction of and on behalf of Participants
whose holdings of Book-Entry Certificates evidence such specified Voting Rights.
DTC may take conflicting actions with respect to Voting Rights, to the extent
that Participants whose holdings of Book-Entry Certificates evidence such Voting
Rights, authorize divergent action.
DTC management is aware that some computer applications, systems and
similar items for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed its Participants and other members of the
financial community (collectively, the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
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According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Depositor, the Master Servicer and the Trustee will have no liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Book-Entry Certificates held by CEDE, as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
the Book-Entry Certificates and the Depositor is unable to locate a qualified
successor, (ii) the Depositor, at its option, elects to terminate the book-entry
system through DTC, or (iii) after the occurrence of an Event of Default,
Certificate Owners representing in the aggregate not less than 51% of the Voting
Rights of the Book-Entry Certificates advise the Trustee and DTC through
Participants, in writing, that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the Certificate Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Certificate Owners through
Participants of the availability of Definitive Certificates. Upon surrender by
DTC of the Definitive Certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Certificate Owners, and thereafter the
Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. Such Definitive Certificates will be
issued in minimum denominations of $______, except that any beneficial ownership
represented by a Book-Entry Certificate in an amount less than $______
immediately prior to the issuance of a Definitive Certificate shall be issued in
a minimum denomination equal to the amount of such beneficial ownership.
DISTRIBUTIONS--GENERAL
The "Due Period" with respect to any Distribution Date commences on the
second day of the month immediately preceding the month in which such
Distribution Date occurs and ends on the first day of the month in which such
Distribution Date occurs. The "Prepayment Period" with respect to any
Distribution Date is the calendar month immediately preceding the month in which
such Distribution Date occurs. The "Determination Date" with respect to any
Distribution Date is on the 15th day of the month in which such Distribution
Date occurs or, if such day is not a business day, on the immediately preceding
business day.
PASS-THROUGH RATES
The Pass-Through Rate for each class of Certificates (other than the Class
XS Certificates) is ____% per annum. The Pass-Through Rate applicable to the
calculation of the Interest Distribution Amount for the Class XS Certificates
for any Distribution Date is the rate per annum expressed as the percentage
equivalent of a fraction, the numerator of which is equal to (i) (A) the amount
of interest accrued on the Mortgage Loans for the immediately preceding calendar
month at the Net Mortgage Rate minus (B) the aggregate amount of interest
payable on the Certificates (other than the XS Certificates), and the
denominator of which is equal to (ii) the Notional Amount of the Class XS
Certificates. The "Net Mortgage Rate" on any Mortgage Loan is equal to the then
applicable Mortgage Rate thereon minus the sum of (i) the Servicing Fee Rate and
(ii) the Trustee's Fee Rate. The "Mortgage Rate" on each Mortgage Loan is the
per annum rate of interest specified in the related mortgage note. The Servicing
Fee Rate on each Mortgage Loan is equal to ____% per annum. The Trustee's Fee
Rate for each Mortgage Loan is equal to ______% per annum. The initial variable
Pass-Through Rate for the Class IO Certificates is approximately ______% per
annum.
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INTEREST DISTRIBUTIONS
Distributions on each Distribution Date will be made to the extent of the
Available Distribution Amount for such Distribution Date. The Available
Distribution Amount for any Distribution Date generally includes scheduled
payments on the Mortgage Loans due during the related Due Period and received on
or prior to the related Determination Date, prepayments and other unscheduled
collections received on the Mortgage Loans during the related Prepayment Period,
any P&I Advances made by the Master Servicer for such Distribution Date and with
respect to each Mortgage Loan with a first payment date occurring in _________
____, a cash amount equal to interest on such Mortgage Loan, net of the amount
of any prepayment charges received on the Mortgage Loans and net of fees payable
to the Master Servicer and the Trustee and certain amounts reimbursable to the
Master Servicer, the Depositor and the Trustee as provided in the Agreement.
Distributions in respect of interest will be made (i) on each Distribution
Date to the holders of the Senior Certificates and, on the first Distribution
Date, to the holders of the Residual Certificates, in an aggregate amount equal
to the Senior Interest Distribution Amount and (ii) on each Distribution Date to
the holders of the Subordinate Certificates, in an aggregate amount equal to the
Subordinate Interest Distribution Amount, to the extent of the portion of the
Available Distribution Amount remaining after the distribution on such date of
the Senior Interest Distribution Amount and the Senior Principal Distribution
Amount. The Senior Interest Distribution Amount on each Distribution Date is
equal to the aggregate of the Interest Distribution Amounts for such
Distribution Date on all of the Senior Certificates and, on the first
Distribution Date, the Residual Certificates. The Subordinate Interest
Distribution Amount on each Distribution Date is equal to the aggregate of the
Interest Distribution Amounts for such Distribution Date on all of the
Subordinate Certificates.
Distributions of the Subordinate Interest Distribution Amount on each
Distribution Date will be made first, to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the Interest Distribution Amount for
such Certificates for such Distribution Date.
The Interest Distribution Amount for the Certificates of any class on any
Distribution Date is equal to interest accrued during the related Interest
Accrual Period on the Certificate Principal Balance or Notional Amount, as
applicable, of such Certificates immediately prior to such Distribution Date at
the then applicable Pass-Through Rate for such class, plus, in the case of each
such class, any such amount remaining unpaid from previous Distribution Dates,
and reduced (to not less than zero), in the case of each such class, by the
allocable share for such class of Prepayment Interest Shortfalls to the extent
not covered by Compensating Interest paid by the applicable Master Servicer,
shortfalls resulting from the application of the Relief Act and certain other
interest shortfalls not covered by the subordination provided by more
subordinate classes of Certificates. Any Prepayment Interest Shortfalls for any
Distribution Date to the extent not covered by Compensating Interest paid by the
applicable Master Servicer will be allocated among the holders of the
Certificates on a PRO RATA basis based on the respective amounts of interest
accrued on such Certificates for such Distribution Date. In addition, any
shortfalls resulting from the application of the Relief Act will be allocated
among the holders of all of the Certificates on a PRO RATA basis as described
above.
The Pass-Through Rate applicable to the calculation of the Interest
Distribution Amounts for each class of Class A Certificates is fixed and is set
forth on the cover hereof. The Pass-Through Rate applicable to the calculation
of the Interest Distribution Amount for the Class XS Certificates for any
Distribution Date is the rate per annum expressed as the percentage equivalent
of a fraction, the numerator of which is equal to (i) (A) the amount of interest
accrued on the Mortgage Loans for the immediately preceding calendar month at
the Net Mortgage Rate minus (B) the aggregate amount of interest payable on the
Certificates (other than the XS Certificates), and the denominator of which is
equal to (ii) the Notional Amount of the Class XS Certificates. The Net Mortgage
Rate for any Mortgage Loan is equal to the Mortgage Rate for such Mortgage Loan
minus the sum of the Servicing Fee Rate and the Trustee's Fee Rate for such
Mortgage Loan. The Servicing Fee Rate for each Mortgage Loan is equal to 0.50%
per annum. The Trustee's Fee Rate for each Mortgage Loan is
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<PAGE>
equal to ______% per annum. The initial variable Pass-Through Rate for the Class
XS Certificates is approximately _______% per annum.
The Interest Accrual Period for each class of Certificates for any
Distribution Date is the one-month period preceding the month in which such
Distribution Date occurs. All distributions of interest will be based on a
360-day year consisting of twelve 30-day months. Except as otherwise described
in this prospectus supplement, on any Distribution Date, distributions of the
Interest Distribution Amount for a class of Certificates will be made in respect
of such class of Certificates, to the extent provided herein, on a PARI PASSU
basis, based on the Certificate Principal Balance or Notional Amount, as
applicable, of the Certificates of each such class.
The Certificate Principal Balance of a Certificate (other than a Class XS
Certificate) outstanding at any time represents the then maximum amount that the
holder thereof is thereafter entitled to receive as distributions allocable to
principal from the cash flow on the Mortgage Loans and the other assets in the
Trust Fund. The Certificate Principal Balance of any class of Certificates
(other than the Class XS Certificates) as of any date of determination is equal
to the initial Certificate Principal Balance thereof, reduced by the aggregate
of (a) all amounts allocable to principal previously distributed with respect to
such Certificate and (b) without duplication of amounts described in clause (a)
above, any reductions in the Certificate Principal Balance thereof deemed to
have occurred in connection with allocations thereto of (i) Realized Losses on
the Mortgage Loans and (ii) Extraordinary Trust Fund Expenses, in either case as
described below.
The Notional Amount of the Class XS Certificates as of any date of
determination is equal to the aggregate principal balance of the then
outstanding Mortgage Loans. Reference to the Notional Amount of the Class XS
Certificates is solely for convenience in certain calculations and does not
represent the right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Distributions in respect of principal will be made on each Distribution
Date to the holders of the class or classes of the Class A Certificates then
entitled to distributions in respect of principal, and on the first Distribution
Date to the holders of the Residual Certificates, in an aggregate amount equal
to the Senior Principal Distribution Amount.
Holders of the Class A Certificates then entitled to distributions in
respect of principal will be entitled to receive on each Distribution Date, and
holders of the Residual Certificates will be entitled to receive on the first
Distribution Date, distributions allocable to principal in reduction of the
Certificate Principal Balances of the Class A Certificates, and on the first
Distribution Date the Residual Certificates, equal to the sum of the following:
(i) the product of (A) the then applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on
the Mortgage Loans due during the related Due Period, whether or not
received;
(2) the principal portion of all proceeds received in respect
of the repurchase of a Mortgage Loan (or, in the case of a
substitution, certain amounts received representing a principal
adjustment) as required by the Agreement during the related Prepayment
Period; and
(3) the principal portion of all other unscheduled collections
(other than amounts described in clauses (ii) and (iii) hereof),
including insurance proceeds and liquidation proceeds, received during
the related Prepayment Period, to the extent applied as recoveries of
principal;
(ii) the product of (A) the then applicable Senior Prepayment
Percentage and (B) the aggregate of all full and partial principal
prepayments received during the related Prepayment Period;
(iii) with respect to the net liquidation proceeds received and
allocable to principal of any Mortgage Loan that was finally liquidated
during the related Prepayment Period, the lesser of (a) the then applicable
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Senior Prepayment Percentage multiplied by such net liquidation proceeds
and (b) the then applicable Senior Percentage multiplied by the Scheduled
Principal Balance of such Mortgage Loan at the time of liquidation; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to the three preceding clauses) that remain
undistributed, to the extent that any such amounts are not attributable to
Realized Losses that were allocated to the Subordinate Certificates.
With respect to any Distribution Date, the lesser of (a) the balance of the
Available Distribution Amount remaining after the Senior Interest Distribution
Amount is distributed and (b) the sum of the amounts described in clauses (i)
through (iv) above is hereinafter referred to as the "Senior Principal
Distribution Amount".
Holders of the Class XS Certificates are not entitled to receive any
distributions allocable to principal.
The Senior Percentage, which initially will equal approximately _____%, and
will in no event exceed ___%, will be adjusted for each Distribution Date after
the first Distribution Date to be the percentage equal to the aggregate
Certificate Principal Balances of the Class A Certificates immediately prior to
such Distribution Date divided by the aggregate of the Scheduled Principal
Balance of each of the Mortgage Loans immediately prior to such Distribution
Date. The Subordinate Percentage as of any date of determination is equal to
___% minus the Senior Percentage as of such date. The Scheduled Principal
Balance of any Mortgage Loan as of any date of determination is equal to the
principal balance thereof as of the Cut-off Date (after application of all
scheduled principal payments due on or before the Cut-off Date, whether or not
received), reduced by (x) the principal portion of all monthly payments due on
or before the date of determination, whether or not received, (y) all amounts
allocable to unscheduled principal that were received prior to the calendar
month in which the date of determination occurs, and (z) any Bankruptcy Loss
occurring out of a Deficient Valuation (as defined herein) that was incurred
prior to the calendar month in which the date of determination occurs.
Except as described below, the Senior Prepayment Percentage for any
Distribution Date occurring prior to the Distribution Date in ________ ____ will
equal ___%. Except as described below, the Senior Prepayment Percentage for any
Distribution Date occurring after the first five years will be as follows: for
any Distribution Date during the _____ year after the Closing Date, the Senior
Percentage for such Distribution Date plus ___% of the Subordinate Percentage
for such Distribution Date; for any Distribution Date during the _______ year
after the Closing Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date during the ______ year after the Closing Date, the Senior
Percentage for such Distribution Date plus __% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date during the _______ year after
the Closing Date, the Senior Percentage for such Distribution Date plus __% of
the Subordinate Percentage for such Distribution Date; and for any Distribution
Date thereafter, the Senior Percentage for such Distribution Date (unless on any
such Distribution Date the Senior Percentage exceeds the initial Senior
Percentage, in which case the Senior Prepayment Percentage for such Distribution
Date will equal ___%). Any scheduled reduction to the Senior Prepayment
Percentage described above shall not be made as of any Distribution Date unless
(i) the outstanding principal balance of Mortgage Loans delinquent 60 days or
more (including real estate owned and Mortgage Loans in foreclosure) averaged
over the last six months does not exceed 50% of the sum of the then current
Certificate Principal Balances of the Subordinate Certificates and (ii) Realized
Losses on the Mortgage Loans to date are less than the then applicable Trigger
Amount. The Trigger Amount for any Distribution Date occurring after the first
____ years will be as follows: for any Distribution Date during the _____ year
after the Closing Date, __% of the initial sum of the Certificate Principal
Balances of the Subordinate Certificates; for any Distribution Date during the
seventh year after the Closing Date, __% of the initial sum of the Certificate
Principal Balances of the Subordinate Certificates; for any Distribution Date
during the ______ year after the Closing Date, __% of the initial sum of the
Certificate Principal Balances of the Subordinate Certificates; and for any
Distribution Date during the _____ year after the Closing Date, __% of the
initial sum of the Certificate Principal Balances of the Subordinate
Certificates. Notwithstanding the foregoing, upon
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reduction of the Certificate Principal Balances of the Senior Certificates to
zero, the Senior Prepayment Percentage will equal 0%.
The disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Senior
Certificates (other than the Class XS Certificates) while, in the absence of
Realized Losses, increasing the respective percentage interest in the principal
balance of the Mortgage Loans evidenced by the Subordinate Certificates.
Increasing the respective percentage interest in the Trust Fund of the
Subordinate Certificates relative to that of the Senior Certificates is intended
to preserve the availability of the subordination provided by the Subordinate
Certificates.
If on any Distribution Date the allocation to the Senior Certificates
(other than the Class XS Certificates) of full and partial principal prepayments
and other amounts in the percentage required above would reduce the aggregate
outstanding Certificate Principal Balance of such Class A Certificates below
zero, such Senior Prepayment Percentage for such Distribution Date will be
limited to the percentage necessary to reduce the aggregate Certificate
Principal Balance of such Senior Certificates to zero.
For purposes of all principal distributions described above and for
calculating the Senior Percentage, the Subordinate Percentage and the Senior
Prepayment Percentage, the applicable Certificate Principal Balance for any
Distribution Date shall be determined after the allocation of losses on the
Mortgage Loans in, and Extraordinary Trust Fund Expenses attributable to, the
Mortgage Pool to be made on such Distribution Date as described under
"--Allocation of Losses; Subordination" below.
PRIORITY OF PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES AND THE
RESIDUAL CERTIFICATES
Distributions of the Senior Principal Distribution Amount on the Class A
Certificates and the Residual Certificates on each Distribution Date will be
made as follows:
(i) First, concurrently, to the holders of each class of the Residual
Certificates on the Distribution Date in ________ ____, an amount equal to
the entire Certificate Principal Balance thereof;
(ii) Second, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Senior Principal Distribution Amount, until
the Certificate Principal Balance thereof has been reduced to zero;
(iii) Third, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(iv) Fourth, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(v) Fifth, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(vi) Sixth, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(vii) Seventh, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(viii) Eighth, to the holders of the Lockout Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, upon the reduction of the
Certificate Principal Balances of the Subordinate Certificates to zero, the
priority of distributions of principal among the Class A Certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding Distribution Date to holders of the Class A Certificates, on a PRO
RATA basis, based on the Certificate Principal Balances thereof.
The "Lockout Certificate Percentage" will be calculated for each
Distribution Date to be the percentage equal to the aggregate Certificate
Principal Balance of the Lockout Certificates divided by the sum of the
aggregate Certificate Principal Balances of the Class A Certificates. The
"Lockout Distribution Percentage"
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for any Distribution Date occurring prior to the Distribution Date in _________
____ will be equal to 0%. The "Lockout Distribution Percentage" for any
Distribution Date occurring after the first ____ years following the Closing
Date will be as follows: for any Distribution Date during the _______ year after
the Closing Date, __% of the Lockout Certificate Percentage for such
Distribution Date; for any Distribution Date during the ______ year after the
Closing Date, __% of the Lockout Certificate Percentage for such Distribution
Date; for any Distribution Date during the _______ year after the Closing Date,
___% of the Lockout Certificate Percentage for such Distribution Date, and for
any Distribution Date thereafter, the lesser of (x) 300% of the Lockout
Certificate Percentage and (y) 100%. Notwithstanding the foregoing, if the
Certificate Principal Balances of the Class A Certificates (other than the
Lockout Certificates) have been reduced to zero, the Lockout Distribution
Percentage will be equal to 100%.
PRINCIPAL DISTRIBUTION ON THE SUBORDINATE CERTIFICATES
Holders of each class of Subordinate Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion of the Available
Distribution Amount remaining after distribution on such date of the Senior
Interest Distribution Amount, the Senior Principal Distribution Amount and the
Subordinate Interest Distribution Amount, distributions allocable to principal
in reduction of the Certificate Principal Balances thereof equal to the sum of
the following:
(i) the product of (A) the then applicable related Class B Percentage
and (B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on
the Mortgage Loans due during the related Due Period, whether or not
received;
(2) the principal portion of all proceeds received in respect
of the repurchase of a Mortgage Loan (or, in the case of a
substitution, certain amounts received representing a principal
adjustment) as required by the Agreement during the related Prepayment
Period; and
(3) the principal portion of all other unscheduled collections
(other than amounts described in clauses (ii) and (iii) hereof),
including insurance proceeds and liquidation proceeds, received during
the related Prepayment Period, to the extent applied as recoveries of
principal;
(ii) the portion allocable to such class of Subordinate Certificates,
as described below, of the product of (A) the then applicable Subordinate
Prepayment Percentage and (B) the aggregate of all full and partial
principal prepayments received during the related Prepayment Period;
(iii) the portion allocable to such class of Subordinate Certificates,
as described below, of net liquidation proceeds received and allocable to
principal of any Mortgage Loan that was finally liquidated during the
related Prepayment Period, to the extent of the amount, if any, by which
such net liquidation proceeds exceed the amount distributable to the Class
A Certificates in respect of such net liquidation proceeds pursuant to
clause (iii) of the definition of Senior Principal Distribution Amount; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to the three preceding clauses) that remain
undistributed, to the extent that any such amounts are not attributable to
Realized Losses that were allocated to classes of the Subordinate
Certificates bearing a higher numerical class designation.
With respect to any Distribution Date, the lesser of (a) the balance of the
Available Distribution Amount remaining after the distribution of the Senior
Interest Distribution Amount, the Senior Principal Distribution Amount and the
Subordinate Interest Distribution Amount and (b) the aggregate of the sum for
each class of Subordinate Certificates of the amounts described in clauses (i)
through (iv) of the immediately preceding paragraph is hereinafter referred to
as the "Subordinate Principal Distribution Amount".
The Class B Percentage for the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates (with respect to each such
class, the related "Class B Percentage") initially will equal approximately
____%, approximately
S-35
<PAGE>
____%, approximately ____%, approximately ____%, approximately ____% and
approximately ____%, respectively, and will in no event exceed 100%, and will be
adjusted for each Distribution Date to be the percentage equal to the
Certificate Principal Balance of the related class of Subordinate Certificates
immediately prior to such Distribution Date divided by the aggregate of the
Scheduled Principal Balance of each of the Mortgage Loans immediately prior to
such Distribution Date. The Subordinate Prepayment Percentage for any
Distribution Date will equal 100% minus the Senior Prepayment Percentage.
On any Distribution Date, the portion of (a) all principal prepayments on
the Mortgage Loans and (b) net liquidation proceeds allocable to principal of
any Mortgage Loan that was finally liquidated during the related Prepayment
Period, in each case not included in the Senior Principal Distribution Amount
will be allocated on a PRO RATA basis among the following classes of Subordinate
Certificates in proportion to the respective outstanding Certificate Principal
Balances thereof: (i) the Class B-1 Certificates; (ii) the Class B-2
Certificates, if on such Distribution Date the aggregate percentage interest in
the Trust Fund evidenced by the Class B-2 Certificates, the Class B-3
Certificates, the Class B-4 Certificates, the Class B-5 Certificates and the
Class B-6 Certificates equals or exceeds ____% before giving effect to
distributions on such Distribution Date; (iii) the Class B-3 Certificates, if on
such Distribution Date the aggregate percentage interest in the Trust Fund
evidenced by the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates equals or exceeds ____% before
giving effect to distributions on such Distribution Date; (iv) the Class B-4
Certificates, if on such Distribution Date the percentage interest in the Trust
Fund evidenced by the Class B-4 Certificates, the Class B-5 Certificates and the
Class B-6 Certificates equals or exceeds ____% before giving effect to
distributions on such Distribution Date; (v) the Class B-5 Certificates, if on
such Distribution Date the percentage interest in the Trust Fund evidenced by
the Class B-5 Certificates and the Class B-6 Certificates equals or exceeds
____% before giving effect to distributions on such Distribution Date; and (vi)
the Class B-6 Certificates, if on such Distribution Date the percentage interest
in the Trust Fund evidenced by the Class B-6 Certificates equals or exceeds
____% before giving effect to distributions on such Distribution Date.
For purposes of all principal distributions described above and for
calculating the Subordinate Percentage, the applicable Certificate Principal
Balance for any Distribution Date shall be determined after the allocation of
losses on the Mortgage Loans in, and Extraordinary Trust Fund Expenses
attributable to, the Mortgage Pool to be made on such Distribution Date as
described under "--Allocation of Losses; Subordination" below.
As stated above under "--Principal Distributions on the Senior
Certificates", for each Distribution Date occurring prior to the Distribution
Date in ________ ____, the Senior Prepayment Percentage will equal 100%, and
until the earlier of such date and the date on which the Class A Certificates
are paid in full, no distributions based on principal prepayments or, in certain
instances, net liquidation proceeds, on the Mortgage Loans will be distributed
to the Subordinate Certificates. Thereafter, unless the Certificate Principal
Balances of the Senior Certificates have been reduced to zero, the Subordinate
Prepayment Percentage may continue to be 0% or otherwise be disproportionately
small relative to the Subordinate Percentage. See "--Principal Distributions on
the Senior Certificates" in this prospectus supplement.
Distributions of the Subordinate Principal Distribution Amount on each
Distribution Date will be made as follows: first to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the portion of the Subordinate Principal
Distribution Amount payable in respect of each such class of Subordinate
Certificates for such Distribution Date.
P&I ADVANCES
Subject to the following limitations, each Master Servicer will be
obligated to advance or cause to be advanced on or before each Distribution Date
its own funds, or funds in the Certificate Account that are not included in the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of all payments of principal and interest, net of the Servicing
Fee (as defined herein), that were due during the
S-36
<PAGE>
related Due Period on the Mortgage Loans master serviced by it and that were
delinquent on the related Determination Date, plus certain amounts representing
assumed payments not covered by any current net income on the Mortgaged
Properties acquired by foreclosure or deed in lieu of foreclosure (any such
advance, a "P&I Advance").
P&I Advances are required to be made only to the extent they are deemed by
the applicable Master Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making such P&I
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. Neither Master Servicer will not be
required to make any P&I Advances with respect to reductions in the amount of
the monthly payments on the Mortgage Loans due to bankruptcy proceedings or the
application of the Relief Act.
All P&I Advances will be reimbursable to the applicable Master Servicer
from late collections, insurance proceeds and liquidation proceeds from the
Mortgage Loan as to which such unreimbursed P&I Advance was made. In addition,
any P&I Advances previously made in respect of any Mortgage Loan that are deemed
by the applicable Master Servicer to be nonrecoverable from related late
collections, insurance proceeds or liquidation proceeds may be reimbursed to
such Master Servicer out of any funds in the Certificate Account prior to the
distributions on the Certificates. In the event either Master Servicer fails in
its obligation to make any such advance, the Trustee will be obligated to make
any such advance, to the extent required in the Agreement.
ALLOCATION OF LOSSES; SUBORDINATION
Realized Losses (other than Excess Losses) and any Extraordinary Trust Fund
Expenses will be allocated on any Distribution Date as follows: first, to the
Class B-6 Certificates; second, to the Class B-5 Certificates; third, to the
Class B-4 Certificates; fourth, to the Class B-3 Certificates; fifth, to the
Class B-2 Certificates; and sixth, to the Class B-1 Certificates, in each case
until the Certificate Principal Balance of such class has been reduced to zero.
Thereafter, such Realized Losses and any Extraordinary Trust Fund Expenses will
be allocated on any Distribution Date among the Class A Certificates on a PRO
RATA basis. Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud
Losses and Extraordinary Losses (collectively, "Excess Losses") will be
allocated on any Distribution Date among all the Certificates (other than the
Class XS Certificates) on a PRO RATA basis. Any allocation of a Realized Loss to
a Certificate will be made by reducing the Certificate Principal Balance thereof
by the amount so allocated as of the Distribution Date in the month following
the calendar month in which such Realized Loss was incurred.
An allocation of a Realized Loss on a PRO RATA basis among two or more
classes of Certificates means an allocation to each such class of Certificates
on the basis of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such Distribution Date.
With respect to any defaulted Mortgage Loan that is finally liquidated
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed-in-lieu of foreclosure or
otherwise, the amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer for P&I Advances, Servicing Fees and Servicing Advances) towards
interest and principal owing on the Mortgage Loan. Such amount of loss realized
and any Special Hazard Losses, Fraud Losses and Bankruptcy Losses are referred
to in this prospectus supplement as "Realized Losses".
In the event that Realized Losses are incurred that are covered by
subordination, such losses will be allocated to the most subordinate class of
Certificates then outstanding. The priorities for distribution of cash flows
described in this prospectus supplement, in certain circumstances, may result in
cash flow shortfalls to any class of Subordinate Certificates even if it is not
the most subordinate class of Certificates then outstanding; however, the
interest portion of any such shortfall would be distributable as unpaid Interest
Distribution Amount on future Distribution Dates as cash flows allow, to the
extent of available funds, and the principal portion of any such shortfall would
not result in a reduction of the Certificate Principal Balance of
S-38
<PAGE>
such class. In such event, the percentage interest represented by such class
would increase relative to the respective Certificate Principal Balances of the
more subordinate classes of Certificates. With respect to the most subordinate
class of the Certificates outstanding at the time any Realized Loss is incurred,
the total amount of the Realized Loss allocated to such class may be greater
than the concurrent reduction in the Certificate Principal Balance thereof
because such reduction will not reflect any undistributed Interest Distribution
Amount on such class. Such undistributed Interest Distribution Amount on the
most subordinate class of the Certificates outstanding will not be distributable
on any future Distribution Date. As a result, it is possible that the total
amount of Realized Losses that may be allocated to any class of Subordinate
Certificates may exceed the initial Certificate Principal Balance thereof.
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount, on
each Distribution Date, holders of Senior Certificates have a right to
distributions of the Available Distribution Amount that is prior to the rights
of the holders of the Subordinate Certificates, to the extent necessary to
satisfy the Senior Interest Distribution Amount and the Senior Principal
Distribution Amount.
The application of the Senior Prepayment Percentage (when it exceeds the
Senior Percentage) to determine the Senior Principal Distribution Amount will
accelerate the amortization of the Class A Certificates relative to the actual
amortization of the Mortgage Loans. To the extent that the Class A Certificates
are amortized faster than the Mortgage Loans, in the absence of offsetting
Realized Losses allocated to the Subordinate Certificates, the percentage
interest evidenced by the Class A Certificates in the Trust Fund will be
decreased (with a corresponding increase in the percentage interest in the Trust
Fund evidenced by the Subordinate Certificates), thereby increasing, relative to
their respective Certificate Principal Balances, the subordination afforded the
Senior Certificates by the Subordinate Certificates.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
subordination shall initially be equal to approximately $_________. As of any
date of determination following the Cut-off Date, the Special Hazard Amount
shall equal approximately $_________ less the sum of (A) any amounts allocated
through subordination in respect of Special Hazard Losses and (B) the Adjustment
Amount. The Adjustment Amount will be equal to an amount calculated pursuant to
the terms of the Agreement.
The aggregate amount of Realized Losses which may be allocated in
connection with Fraud Losses (the "Fraud Loss Amount") through subordination
shall initially be equal to approximately $_________. As of any date of
determination after the Cut-off Date, the Fraud Loss Amount shall equal (X)
prior to the first anniversary of the Cut-off Date an amount equal to ____% of
the aggregate principal balance of all of the Mortgage Loans as of the Cut-off
Date minus the aggregate amounts allocated through subordination with respect to
Fraud Losses on the Mortgage Loans up to such date of determination, (Y) from
the first to the second anniversary of the Cut-off Date, an amount equal to (1)
the lesser of (a) the Fraud Loss Amount as of the most recent anniversary of the
Cut-off Date and (b) ____% of the aggregate principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (2)
the aggregate amounts allocated through subordination with respect to Fraud
Losses on the Mortgage Loans since the most recent anniversary of the Cut-off
Date up to such date of determination and (Z) from the second to the fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date, and (b)
____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the aggregate amounts
allocated through subordination with respect to Fraud Losses on the Mortgage
Loans since the most recent anniversary of the Cut-off Date up to such date of
determination. On and after the fifth anniversary of the Cut-off Date, the Fraud
Loss Amount shall be zero.
The aggregate amount of Realized Losses which may be allocated in
connection with Bankruptcy Losses (the "Bankruptcy Amount") through
subordination will initially be equal to approximately $_______. As of any date
of determination, the Bankruptcy Amount shall equal the initial Bankruptcy
Amount less the sum of any amounts allocated through subordination for such
losses up to such date of determination.
S-38
<PAGE>
The Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount may be
reduced or modified upon confirmation from Standard & Poor's and Fitch that such
reduction or modification will not adversely affect the then-current ratings
assigned to the Offered Certificates rated thereby. Such a reduction or
modification may adversely affect the coverage provided by the subordination
with respect to Special Hazard Losses, Fraud Losses and Bankruptcy Losses.
A "Special Hazard Loss" is a loss incurred in respect of any defaulted
Mortgage Loan as a result of direct physical loss or damage to the Mortgaged
Property (except as a result of the exclusions described below), which is not
insured against under the standard hazard insurance policy or blanket policy
insuring against hazard losses which the Master Servicer is required to cause to
be maintained on each Mortgage Loan. See "Description of Primary Insurance
Policies--Primary Hazard Insurance Policies" in the prospectus.
Special Hazard Losses will not include any loss resulting from:
(i) wear and tear, deterioration, rust or corrosion, mold, wet or dry
rot; inherent vice or latent defect; animals, birds, vermin, insects;
(ii) smog, smoke, vapor, liquid or dust discharge from agricultural or
industrial operations; pollution; contamination;
(iii) settling, subsidence, cracking, shrinkage, bulging or expansion
of pavements, foundations, walls, floors, roofs or ceilings;
(iv) errors in design, faulty workmanship or faulty materials, unless
the collapse of the property or a part thereof ensues and then only for the
ensuing loss;
Special Hazard Losses also will not include any loss (each, an "Extraordinary
Loss") resulting from:
(i) nuclear or chemical reaction or nuclear radiation or radioactive or
chemical contamination, all whether controlled or uncontrolled and whether
such loss be direct or indirect, proximate or remote or be in whole or in
part caused by, contributed to or aggravated by a peril covered by the
definition of the term "Special Hazard Loss";
(ii) hostile or warlike action in time of peace or war, including
action in hindering, combating or defending against an actual, impending or
expected attack by any government or sovereign power, de jure or de facto,
or by any authority maintaining or using military, naval or air forces, or
by military, naval or air forces, or by an agent of any such government,
power, authority or forces;
(iii) any weapon of war employing atomic fission or radioactive forces
whether in time of peace or war; and
(iv) insurrection, rebellion, revolution, civil war, usurped power or
action taken by governmental authority in hindering, combating or defending
against such an occurrence, seizure or destruction under quarantine or
customs regulations, confiscation by order of any government or public
authority, or risks of contraband or illegal transactions or trade.
"Excess Special Hazard Losses" are Special Hazard Losses in excess of the
Special Hazard Amount.
A "Fraud Loss" is a loss incurred on a defaulted Mortgage Loan as to which
there was intentional fraud, dishonesty or misrepresentation in the origination
of such Mortgage Loan.
"Excess Fraud Losses" are Fraud Losses in excess of the Fraud Loss Amount.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service Reduction.
With respect to any Mortgage Loan, a "Deficient Valuation" is a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy Code. A
"Debt Service Reduction" is any reduction in the amount which a mortgagor is
obligated to pay on a monthly basis with respect to a Mortgage Loan as a result
of any proceeding initiated under the United States Bankruptcy Code, other than
a reduction attributable to a Deficient Valuation.
S-39
<PAGE>
"Excess Bankruptcy Losses" are Bankruptcy Losses in excess of the
Bankruptcy Amount.
An "Extraordinary Trust Fund Expense" is an unanticipated, non-Mortgage
Loan specific Trust Fund expense, including certain reimbursements to the Master
Servicer or Depositor described in the prospectus under "Description of the
Certificates--Certain Matters Regarding the Master Servicer and the Depositor",
certain reimbursements to the Trustee described under "Pooling and Servicing
Agreement--The Trustee" in this prospectus supplement and certain taxes that may
be payable by the Trust Fund as described in this prospectus supplement under
"Federal Income Tax Consequences".
RESTRICTIONS ON TRANSFER OF THE SUBORDINATE CERTIFICATES AND THE RESIDUAL
CERTIFICATES
Because the Subordinate Certificates are subordinate to the Senior
Certificates, the Subordinate Certificates of any class may not be purchased by
or transferred to a Plan (as defined herein) except upon the delivery of a
certification of facts or an opinion of counsel, as provided in this prospectus
supplement. In addition, the Residual Certificates may not be purchased by or
transferred to a Plan (as defined herein) except upon the delivery of a
certification of facts or an opinion of counsel, as provided in this prospectus
supplement. See "ERISA Considerations" in this prospectus supplement. In
addition, the Residual Certificates will be subject to certain additional
restrictions described under "Federal Income Tax Consequences--Special Tax
Considerations Applicable to the Residual Certificates" in this prospectus
supplement and "Federal Income Tax Consequences--REMICs--Tax on Transfers of
REMIC Residual Certificates to Certain Organizations" and "--Taxation of Owners
of REMIC Residual Certificates--Noneconomic REMIC Residual Certificates" in the
prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Agreement, a form of which
is filed as an exhibit to the Registration Statement. A Current Report on Form
8-K relating to the Certificates containing a copy of the Agreement as executed
will be filed by the Depositor with the Securities and Exchange Commission
within fifteen days of the initial issuance of the Certificates. The Trust Fund
created under the Agreement will consist of (i) all of the Depositor's right,
title and interest in and to the Mortgage Loans, the related Mortgage Notes,
Mortgages and other related documents, (ii) all payments on or collections in
respect of the Mortgage Loans due after the Cut-off Date, together with any
proceeds thereof, (iii) any Mortgaged Properties acquired on behalf of
Certificateholders by foreclosure or by deed in lieu of foreclosure, and any
revenues received thereon, (iv) the rights of the Trustee under all insurance
policies required to be maintained pursuant to the Agreement and (v) the rights
of the Depositor under the Mortgage Loan Purchase Agreement among the Depositor,
the Mortgage Loan Seller and the Originator (other than certain rights of the
Depositor to indemnification by the Originator). Reference is made to the
prospectus for important information in addition to that set forth in this
prospectus supplement regarding the Trust Fund, the terms and conditions of the
Agreement and the Offered Certificates. The Offered Certificates will be
transferable and exchangeable at the corporate trust offices of the Trustee,
located in Minneapolis, Minnesota. The Depositor will provide to a prospective
or actual Certificateholder without charge, on written request, a copy (without
exhibits) of the Agreement. Requests should be addressed to the Secretary, New
Century Mortgage Securities, Inc., 18400 Von Karman, Irvine, California 92612.
ASSIGNMENT OF THE MORTGAGE LOANS
The Depositor will deliver to the Trustee or to a custodian with respect to
each Mortgage Loan (i) the Mortgage Note endorsed without recourse to the
Trustee to reflect the transfer of the Mortgage Loan, (ii) the original Mortgage
with evidence of recording indicated thereon and (iii) an assignment of the
Mortgage in recordable form to the Trustee, reflecting the transfer of the
Mortgage Loan. Such assignments of Mortgage
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<PAGE>
Loans are required to be recorded by or on behalf of the Depositor in the
appropriate offices for real property records.
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided by
________________. None of the Depositor, the Mortgage Loan Seller, the Trustee
or any of their respective affiliates has made or will make any representation
as to the accuracy or completeness of such information.
The following table summarizes the Master Servicer's one- to four-family
residential mortgage loan origination and sales activity for the periods shown
below. Sales activity may include sales of mortgage loans purchased by the
Master Servicer from other loan originators.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Originations ..........
Sales .................
</TABLE>
The following table sets forth the Master Servicer's delinquency and loss
experience at the dates indicated on its servicing portfolio of mortgage loans
originated under the Master Servicer Programs (the majority of such mortgage
loans reflected in the following table are adjustable rate mortgage loans):
S-41
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
SEPTEMBER30,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance..................................
Number of Loans
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding Principal
Balance............................
Delinquency as a Percentage
of Number of Loans.................
61-90 Days
Principal Balance
Number of Loans
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
91 Days or More
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
Total Delinquencies:
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
FORECLOSURES PENDING(1)
Principal Balance.....................
Number of Loans.......................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal Balance.......
Foreclosures Pending as
a Percentage of Number of
Loans...............................
NET LOAN LOSSES for the Period(2)..........
NET LOAN LOSSES as a Percentage
of Total Outstanding Principal
Balance..................................
</TABLE>
- --------------------
(1) Mortgage loans which are in foreclosure but as to which title to the
mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of ___________ loans serviced by __________ have been
conveyed to REMIC trust funds.
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<PAGE>
The following table sets forth the Master Servicer's delinquency and loss
experience at the dates indicated on its entire residential (including
multi-family) mortgage loan servicing portfolio:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
SEPTEMBER30,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance..................................
Number of Loans
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding Principal
Balance............................
Delinquency as a Percentage
of Number of Loans.................
61-90 Days
Principal Balance
Number of Loans
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
91 Days or More
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
Total Delinquencies:
Principal Balance.....................
Number of Loans.......................
Delinquency as a Percentage
of Total Outstanding
Principal Balance...................
Delinquency as a Percentage
of Number of Loans..................
FORECLOSURES PENDING(1)
Principal Balance.....................
Number of Loans.......................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal Balance.......
Foreclosures Pending as
a Percentage of Number of
Loans...............................
NET LOAN LOSSES for the Period(2)..........
NET LOAN LOSSES as a Percentage
of Total Outstanding Principal
Balance..................................
</TABLE>
- --------------------
(1) Mortgage loans which are in foreclosure but as to which title to the
mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts
S-43
<PAGE>
received in connection with the liquidation of such loan. The majority of
residential loans serviced by __________ have been conveyed to REMIC trust
funds.
THE TRUSTEE
___________________, a national banking association, will act as Trustee
for the Certificates pursuant to the Agreement. The Trustee's offices for
notices under the Agreement are located at .
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to accrued interest at the
Trustee's Fee Rate of ______% per annum on the Stated Principal Balance of each
Mortgage Loan (the "Trustee's Fee"). The Agreement will provide that the Trustee
and any director, officer, employee or agent of the Trustee will be indemnified
by the Trust Fund and will be held harmless against any loss, liability or
expense (not including expenses, disbursements and advances incurred or made by
the Trustee, including the compensation and the expenses and disbursements of
its agents and counsel, in the ordinary course of the Trustee's performance in
accordance with the provisions of the Agreement) incurred by the Trustee in
connection with any pending or threatened claim or legal action arising out of
or in connection with the acceptance or administration of its obligations and
duties under the Agreement, other than any loss, liability or expense (i)
resulting from a breach of either of the Master Servicer's obligations and
duties under the Agreement, (ii) that constitutes a specific liability of
Trustee under the Agreement or (iii) incurred by reason of willful misfeasance,
bad faith or negligence in the performance of the Trustee's duties under the
Agreement or as a result of a breach, or by reason of reckless disregard, of the
Trustee's obligations and duties under the Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to each Master Servicer in respect of
its servicing activities for the Certificates will be equal to accrued interest
at the Servicing Fee Rate of ____% per annum with respect to each Mortgage Loan
master serviced by it for each calendar month on the same principal balance on
which interest on such Mortgage Loan accrues for such calendar month (the
"Servicing Fee"). As additional servicing compensation, each Master Servicer is
entitled to retain all assumption fees and late payment charges in respect of
Mortgage Loans master serviced by it, to the extent collected from mortgagors,
together with any interest or other income earned on funds held in the
Certificate Account and any escrow accounts in respect of Mortgage Loans master
serviced by it. Each Master Servicer is obligated to offset any Prepayment
Interest Shortfall in respect of Mortgage Loans master serviced by it on any
Distribution Date (payments made by such Master Servicer in satisfaction of such
obligation, "Compensating Interest") to the extent of its aggregate Servicing
Fee for such Distribution Date. Each Master Servicer is obligated to pay certain
insurance premiums and certain ongoing expenses associated with the Mortgage
Pool in respect of Mortgage Loans master serviced by it and incurred by such
Master Servicer in connection with its responsibilities under the Agreement and
is entitled to reimbursement therefor as provided in the Agreement. See
"Description of the Certificates--Retained Interest; Servicing Compensation and
Payment of Expenses" in the prospectus for information regarding expenses
payable by the Master Servicer and "Federal Income Tax Consequences" in this
prospectus supplement regarding certain taxes payable by the Master Servicer.
VOTING RIGHTS
At all times, __% of all Voting Rights will be allocated among the holders
of the Certificates (other than the Class XS Certificates and the Residual
Certificates) in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates, __% of all Voting Rights will be
allocated among the holders of the Class XS Certificates in proportion to the
then outstanding Notional Amounts of their respective Certificates and __% of
all Voting Rights will be allocated among the holders of the Residual
Certificates in proportion to the percentage interests in each such class
evidenced by their respective Certificates.
TERMINATION
The circumstances under which the obligations created by the Agreement will
terminate in respect of the Certificates are described in "Description of the
Certificates--Termination" in the prospectus. The Master
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Servicer will have the right to purchase the Mortgage Loans and any properties
acquired in respect thereof on any Distribution Date, once the aggregate
principal balance of the Mortgage Loans and such properties at the time of
purchase is reduced to less than __% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. If the Master Servicer elects to exercise
the foregoing option, such election will effect the termination of the Trust
Fund and the early retirement of the Certificates. In the event the Master
Servicer exercise such option, notwithstanding the terms of the prospectus, the
purchase price payable in connection therewith generally will be equal to par
plus accrued interest for each Mortgage Loan at the related Mortgage Rate to but
not including the first day of the month in which such repurchase price is
distributed, and the portion of the purchase price allocable to the Certificates
of each class will be, to the extent of available funds, (i) in the case of the
Certificates of any class, other than the Class XS Certificates, 100% of the
then outstanding Certificate Principal Balance thereof, plus (ii) in the case of
the Certificates of any class, one month's interest on the then outstanding
Certificate Principal Balance or Notional Amount thereof at the then applicable
Pass-Through Rate for such class plus any previously accrued but unpaid interest
thereon. In no event will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the Agreement. See "Description of the Certificates--Termination" in the
prospectus. In no event will the trust created by the Agreement continue beyond
the expiration of 21 years from the death of the survivor of the person or
persons named in the Agreement. See "Description of the
Certificates--Termination" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
A separate elections will be made to treat designated portions of the Trust
Fund as a real estate mortgage investment conduit ("REMICI") for federal income
tax purposes. Upon the issuance of the Offered Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the Agreement, for federal
income tax purposes, the REMIC will qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, (i) the Class R Certificates will be the
sole class of "residual interests" in the REMIC and (ii) the Senior Certificates
and the Subordinate Certificates will evidence the "regular interests" in, and
will be treated as debt instruments of, the REMIC. See "Federal Income Tax
Consequences--REMIC--Classification of REMICs" in the prospectus.
For federal income tax reporting purposes, the Class XS Certificates will,
and the Class A Certificates, the Class B-1 Certificates, the Class B-2
Certificates and the Class B-3 Certificates will not, be treated as having been
issued with original issue discount. The prepayment assumption that will be used
in determining the rate of accrual of original issue discount, premium and
market discount, if any, for federal income tax purposes will be based on the
assumption that, subsequent to the date of any determination, the Mortgage Loans
will prepay at a rate equal to ____% of the Prepayment Vector. No representation
is made that the Mortgage Loans will prepay at that rate or at any other rate.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" in the prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Class XS Certificates should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
securities such as the Class XS Certificates. In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on a variable rate such as the
Class XS Certificates. Prospective purchasers of the Class XS Certificates are
advised to consult their tax advisors concerning the tax treatment of such
Certificates.
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If the method of computing original issue discount described in the
prospectus results in a negative amount for any period with respect to any
Certificateholder (in particular, the holders of the Class XS Certificates), the
amount of original issue discount allocable to such period would be zero, and
such Certificateholder will be permitted to offset such amounts only against the
respective future income (if any) from such Certificate. Although uncertain, a
Certificateholder may be permitted to deduct a loss to the extent that his or
her respective remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Although the matter is not free from doubt,
any such loss might be treated as a capital loss.
The OID Regulations suggest that original issue discount with respect to
securities such as the Class XS Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer should be computed on an aggregate
method. In the absence of further guidance from the IRS, original issue discount
with respect to the uncertificated regular interests represented by the Class XS
Certificates will be reported to the IRS and the Certificateholders on an
aggregate method based on a single overall constant yield and the prepayment
assumption stated above, treating all such uncertificated regular interests as a
single debt instrument as set forth in the OID Regulations.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that of the issuer. Accordingly, it is possible that holders of Offered
Certificates issued with original issue discount may be able to select a method
for recognizing original issue discount that differs from that used in preparing
reports to Certificateholders and the IRS. Prospective purchasers of Offered
Certificates issued with original issue discount are advised to consult their
tax advisors concerning the tax treatment of such Certificates in this regard.
Certain Classes of Certificates may be treated for federal income tax
purposes as having been issued with a premium. Certificateholders may elect to
amortize such premium under a constant yield method in which case such
amortizable premium will generally be allocated among the interest payments on
such Certificates and will be applied as an offset against such interest
payments. See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Regular Certificates--Premium" in the prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code, generally in the same proportion that the assets in the related
Trust Fund would be so treated. In addition, interest on the Offered
Certificates will be treated as "interest on obligations secured by mortgages on
real property" under Section 856(c)(3)(B) of the Code, generally to the extent
that the Offered Certificates are treated as "real estate assets" under Section
856(c)(4)(A) of the Code. The Offered Certificates (other than the Residual
Certificates) also will be treated as "qualified mortgages" under Section
860G(a)(3) of the Code. See "Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the prospectus.
It is not anticipated that the REMIC will engage in any transactions that
would subject it to the prohibited transactions tax as defined in Section
860F(a)(2) of the Code, the contributions tax as defined in Section 860G(d) of
the Code or the tax on net income from foreclosure property as defined in
Section 860G(c) of the Code. However, in the event that any such tax is imposed
on the REMIC, such tax will be borne (i) by the Trustee, if the Trustee has
breached its obligations with respect to REMIC compliance under the Agreement,
(ii) by the Master Servicer, if the Master Servicer has breached its obligations
with respect to REMIC compliance under the Agreement and (iii) otherwise by the
Trust Fund, with a resulting reduction in amounts otherwise distributable to
holders of the related Offered Certificates. See "Description of the
Certificates-- General" and "Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes" in the prospectus.
The responsibility for filing annual federal information returns and other
reports will be borne by the Trustee. See "Federal Income Tax
Consequences--REMICs--Reporting and Other Administrative Matters" in the
prospectus.
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For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The IRS has issued regulations under the provisions of the Code related to
REMICs (the "REMIC Regulations") that significantly affect holders of the
Residual Certificates. The REMIC Regulations will impose restrictions on the
transfer or acquisition of certain residual interests, including the Residual
Certificates. In addition, the REMIC Regulations contain restrictions that apply
to the transfer of "noneconomic" residual interests to United States persons.
The REMIC Regulations also provide that transfers of a Residual Certificate to a
non-United States person will be disregarded for tax purposes in certain cases.
Transfers of the Residual Certificates to such persons are, however, prohibited
under the Agreement. See "Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Residual Certificates--Noneconomic REMIC Residual Certificates"
in the prospectus and "ERISA Considerations" and "Description of the
Certificates--Restrictions on Transfer of the Residual Certificates" in this
prospectus supplement for additional restrictions on transfer of the Residual
Certificates.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, unless "no significant purpose of the
transfer was to impede the assessment or collection of tax". Based on the REMIC
Regulations, the Residual Certificates will constitute noneconomic residual
interests during some or all of their terms for purposes of the REMIC
Regulations and, accordingly, unless no significant purpose of a transfer is to
impede the assessment or collection of tax, transfers of the Residual
Certificates may be disregarded and purported transferors may remain liable for
any taxes due with respect to the income on the Residual Certificates. All
transfers of the Residual Certificates will be subject to certain restrictions
under the terms of the Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Residual Certificates
constitute noneconomic residual interests.
The holders of the Residual Certificates will be required to report taxable
income and pay tax with respect to the early accrual periods of the REMIC's term
that significantly exceeds the amount of cash distributions received by such
holders from the REMIC with respect to such periods. Furthermore, the tax on
such income will exceed the cash distributions with respect to such periods.
Consequently, holders of Residual Certificates should have other sources of
funds sufficient to pay any federal income taxes due in the earlier years of the
REMIC as a result of their ownership of Class R Certificates. In addition, the
required inclusion of this amount of taxable income during the REMIC's earlier
accrual periods and the deferral of corresponding tax losses or deductions until
later accrual periods or until the ultimate sale or disposition of a Residual
Certificate (or possibly later under the "wash sale" rules of Section 1091 of
the Code) may cause the after-tax rate of return of a holder of a Residual
Certificate to be zero or negative even where such holders' pre-tax rate of
return is positive. That is, on a present value basis, the resulting tax
liabilities of a holder of a Residual Certificate will substantially exceed the
sum of any tax benefits and the amount of any cash distributions on such
Residual Certificates over their life.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate may have
significant additional gross income with respect to, but may be subject to
limitations on the deductibility of, servicing and trustee's fees and other
administrative expenses properly allocable to the REMIC in computing such
holder's regular tax liability and will not be able to deduct such fees or
expenses to any extent in computing such holder's alternative minimum tax
liability. See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates--Pass Through of Miscellaneous Itemized Deductions"
in the prospectus.
Potential investors in Residual Certificates should also be aware that
under the terms of the Agreement, the holders of the largest Percentage Interest
in the Residual Certificates shall, by their acceptance of such
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Certificates, agree to irrevocably appoint the Trustee as their agent to perform
all of the duties of the tax matters person for the REMIC.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
the Residual Certificates.
For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see "Yield on the
Certificates--Additional Yield Considerations Applicable Solely to the Residual
Certificates" in this prospectus supplement and "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual Certificates" in the
prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated _________ __, ____ (the "Underwriting Agreement"), the
Depositor has agreed to sell, and ______________ (the "Underwriter") has agreed
to purchase the Offered Certificates. The Underwriter is obligated to purchase
all Offered Certificates of the respective classes offered hereby if it
purchases any. The Underwriter is an affiliate of the Depositor.
Distribution of the Offered Certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates, before deducting expenses payable by the Depositor, will be
approximately _________% of the aggregate initial Certificate Principal Balance
of the Offered Certificates (other than the Class XS Certificates), plus accrued
interest on the Offered Certificates. In connection with the purchase and sale
of the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
The Offered Certificates are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Book-Entry Certificates will be made
through the facilities of DTC, and that delivery of each other class of Offered
Certificates and the Residual Certificates will be made at the offices of the
Underwriter, Seven World Trade Center, New York, New York 10048, in each case,
on or about the Closing Date.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Offered
Certificates will be the monthly statements discussed in the prospectus under
"Description of the Certificates--Reports to Certificateholders", which will
include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Offered
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information about the
Offered Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered Certificates may
adversely affect the liquidity of the Offered Certificates, even if a secondary
market for the Offered Certificates becomes available.
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LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor and the Underwriter by Thacher Proffitt & Wood, New York,
New York.
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates and the Residual Certificates be rated "AAA" by _________________
("_____") and "AAA" by ____________ ("____"), that the Class XS Certificates be
rated "AAAr" by ________ and "AAA" by ______, that the Class B-1 Certificates be
rated at least "AA" by _________ and at least "AA" by _______, that the Class
B-2 Certificates be rated at least "A" by _________ and at least "A" by
________, and that the Class B-3 Certificates be rated at least "BBB" by
__________.
The ratings of _________ and ________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by Certificateholders of all
distributions to which such Certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which such prepayments will differ from that originally anticipated.
The ratings do not address the possibility that Certificateholders might suffer
a lower than anticipated yield due to non-credit events or that the holders of
the Class XS Certificates may fail to recover fully their initial investment. In
addition, the ratings on the Residual Certificates do not address the likelihood
of receipt by the holders of the Residual Certificates of any amounts in excess
of their initial Certificate Balance thereof and interest thereon. [The "r" of
the "AAAr" rating of the Class XS Certificates by ____________ is attached to
highlight derivative, hybrid, and certain other certificates that _____________
believes may experience high volatility or high variability in expected returns
due to non-credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities or currencies;
certain swaps and options; and interest only and principal only mortgage
securities. The absence of an "r" symbol should not be taken as an indication
that a Certificate will exhibit no volatility or variability in total return].
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Offered Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the Offered Certificates.
The Depositor has not requested that any rating agency rate any class of
the Offered Certificates other than as stated above. However, there can be no
assurance as to whether any other rating agency will rate any class of the
Offered Certificates, or, if it does, what rating would be assigned by any such
other rating agency. A rating on any class of the Offered Certificates by
another rating agency, if assigned at all, may be lower than the ratings
assigned to such classes of the Offered Certificates as stated above.
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LEGAL INVESTMENT
The Senior Certificates and the Class B-1 Certificates will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long as they are rated not lower than
the second highest rating category by a Rating Agency (as defined in the
prospectus) and, as such, will be legal investments for certain entities to the
extent provided in SMMEA. SMMEA, however, provides for state limitation on the
authority of such entities to invest in "mortgage related securities" provided
that such restrictive legislation was enacted prior to October 3, 1991. Certain
states have enacted legislation which overrides the preemption provisions of
SMMEA. The Class B-2 Certificates and the Class B-3 Certificates will not
constitute "mortgage related securities" for purposes of SMMEA.
The Depositor makes no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Offered Certificates under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their legal
advisors in determining whether and to what extent any class of Offered
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any other plan or arrangement
subject to ERISA or Section 4975 of the Code (each, a "Plan") or any person
investing Plan Assets of any Plan (as defined in the prospectus under "ERISA
Considerations") should carefully review with its legal advisors whether the
purchase, sale or holding of Certificates will give rise to a prohibited
transaction under ERISA or Section 4975 of the Code.
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23 (the "Exemption"), as described under "ERISA
Considerations" in the prospectus, to the Underwriter. The Exemption generally
exempts from the application of certain of the prohibited transaction provisions
of Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes imposed on such prohibited transactions
by Section 4975(a) and (b) of the Code and Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding of pass-through certificates
underwritten by the Underwriter such as the Senior Certificates, and the
servicing and operation of asset pools such as the Mortgage Pool, provided that
certain conditions are satisfied. The purchase of the Senior Certificates by, on
behalf of or with the Plan Assets of any Plan may qualify for exemptive relief
under the Exemption. However, the Exemption contains a number of conditions
which must be met for the Exemption to apply (as described in the prospectus),
including the requirement that any such Plan must be an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended. A fiduciary of a Plan
contemplating purchasing a Senior Certificate must make its own determination
that the conditions set forth in the Exemption will be satisfied with respect to
the Senior Certificates.
Because the characteristics of the Subordinate Certificates and the
Residual Certificates will not meet the requirements of Prohibited Transaction
Class Exemption ("PTCE") 83-1 (as described in the prospectus) or the Exemption,
the purchase, sale or holding of the Subordinate Certificates or the Residual
Certificates by, on behalf of or with Plan Assets of any Plan may result in
prohibited transactions or the imposition of excise taxes or civil penalties.
Therefore, the Agreement provides that transfers of Subordinate or Residual
Certificates to a Plan, a trustee or other person acting on behalf of any Plan
or to any person using Plan Assets to effect such acquisition will not be
registered by the Trustee unless the purchaser thereof provides the Depositor,
the Trustee and the Master Servicer with either (i) an opinion of counsel
satisfactory to the Depositor, the
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Trustee and the Master Servicer, which opinion will not be at the expense of the
Depositor, the Master Servicer, the Trustee or the Trust Fund, to the effect
that the purchase of such Certificates is permissible under applicable law, will
not constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the Master
Servicer, the Trustee or the Trust Fund to any obligation in addition to those
undertaken in the Agreement or (ii) a certification of facts (which in the case
of the Class B-1 Certificates, the Class B-2 Certificates and the Class B-3
Certificates, the purchaser will be deemed to have represented such
certification of facts) substantially to the effect that the purchase of Offered
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result on a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code, will not subject the Depositor, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the
Agreement and the following conditions are met: (a) the transferee is an
insurance company and (i) the source of funds used to purchase such Offered
Certificates is an "insurance company general account" (as such term is defined
in PTCE 95-60), (ii) the conditions set forth in Sections I and III of PTCE
95-60 have been satisfied and (iii) there is no Plan with respect to which the
amount of such general account's reserves and liabilities for contracts held by
or on behalf of such Plan and all other Plans maintained by the same employer
(or any "affiliate" thereof, as defined in PTCE 95-60) or by the same employee
organization, exceeds 10% of the total of all reserves and liabilities of such
general account (as determined under PTCE 95-60) as of the date of the
acquisition of such Certificates; (b) the transferee is an insurance company and
(i) the source of funds used to purchase such Certificates is an insurance
company general account, (ii) the requirements of Sections 401(c) of ERISA and
the regulations to be promulgated thereunder have been satisfied and will
continue to be satisfied and (iii) the insurance company represents that it
understands that the operation of the general account after December 31, 1998
may affect its ability to continue to hold such Certificates after the date
which is 18 months after the 401(c) Regulations become final and that unless a
Class Exemption or an exception under Section 401(c) of ERISA is then available
for the continued holding of such Certificates, it will dispose of such
Certificates prior to the date which is 18 months after the 401(c) Regulations
become final; (c) the transferee is an insurance company and (i) the source of
funds used to purchase such Certificates is an "insurance company pooled
separate account" (as such term is defined in PTCE 90-1), (ii) the conditions
set forth in PTCE 90-1 have been satisfied and (iii) there is no Plan, together
with all other Plans maintained by the same employer (or any "affiliate"
thereof, as defined in PTCE 90-1) or by the same employee organization, with
assets which exceed 10% of the total of all assets in such pooled separate
account (as determined under PTCE 90-1) as of the date of the acquisition of
such Certificates; (d) the transferee is a bank and (i) the source of funds used
to purchase such Certificates is a "collective investment fund" (as defined in
PTCE 91-38), (ii) the conditions set forth in PTCE 91-38 have been satisfied and
(iii) there is no Plan, the interests of which, together with the interests of
any other Plans maintained by the same employer or employee organization, in the
collective investment fund exceed 10% of the total of all assets in the
collective investment fund (as determined under PTCE 91-38) as of the date of
acquisition of such Certificates; (e) the transferee is a "qualified
professional asset manager" described in PTCE 84-14 and the conditions set forth
in PTCE 84-14 have been satisfied and will continue to be satisfied; or (f) the
transferee is an "in-house asset manager" described in PTCE 96-23 and the
conditions set forth in PTCE 96-23 have been satisfied and will continue to be
satisfied. The Subordinate Certificates and the Residual Certificates will
contain a legend describing such restrictions on transfer.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm (a) that the Senior Certificates constitute "certificates" for purposes
of the Exemption and (b) that the specific and general conditions of the
Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition, before purchasing a Subordinate Certificate or Residual
Certificate, a fiduciary of a Plan should itself confirm that the conditions to
such purchase described above would be satisfied. Any Plan fiduciary that
proposes to cause a Plan to purchase a Certificate should consult with its
counsel with respect to the potential applicability to such investment of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to the proposed investment. For further information regarding the ERISA
considerations of investing in the Certificates, see "ERISA Considerations" in
the prospectus.
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$____________ (APPROXIMATE)
NEW CENTURY
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-__
PROSPECTUS SUPPLEMENT
DATED _________ ___, ____
MASTER SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED HEREBY IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR COVER PAGES.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Offered Certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until _______ ___,
____.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated April __, 1999
[Version 2]
Prospectus Supplement
(To Prospectus dated , ____)
$___________ (APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-___
NEW CENTURY MORTGAGE SECURITIES, INC.
DEPOSITOR
MASTER SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
The certificates will represent interests only in a trust consisting primarily
of mortgage loans and will not represent ownership interests in or obligations
of any other entity.
This prospectus supplement may be used to offer and sell the certificates
offered hereby only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
THE TRUST --
o will consist primarily of a pool of one- to four-family fixed-rate, first
lien and second lien residential mortgage loans; and
o will be represented by _______ classes of certificates, _______ of which
are offered hereby.
THE OFFERED CERTIFICATES --
o will represent senior interests in the trust and will receive
distributions from the assets of the trust;
o will have credit enhancement in the forms of (i) a certificate insurance
policy issued by ______________ and (ii) overcollateralization; and
o will receive monthly distributions commencing on _______ __, ____.
________________ (the "Underwriter") will offer the Class A-1 Certificates, the
Class A-2 Certificates, the Class A-3 Certificates, the Class A- 4 Certificates,
the Class A-5 Certificates, the Class A-6 Certificates and the Class A-7
Certificates (collectively, the "Offered Certificates") from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Depositor from the sale of
such certificates, before deducting expenses, will be approximately _____% of
the initial principal balance of such certificates, plus accrued interest on
such certificates. The Underwriter's commission will be any positive difference
between the price it pays to the Depositor for such certificates and the amount
it receives from the sale of such certificates to the public. See "Method of
Distribution" herein.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------------------------------
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.
We provide information to you about the Offered Certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
New Century Mortgage Securities Inc.'s principal offices are located at 18400
Von Karman, Irvine California 92612 and its phone number is (949) 440-7030.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT............................................S-__
RISK FACTORS................................................................S-__
USE OF PROCEEDS.............................................................S-__
THE MORTGAGE POOL...........................................................S-__
YIELD ON THE CERTIFICATES...................................................S-__
DESCRIPTION OF THE CERTIFICATES.............................................S-__
POOLING AND SERVICING AGREEMENT.............................................S-__
THE INSURER.................................................................S-__
FEDERAL INCOME TAX CONSEQUENCES.............................................S-__
METHOD OF DISTRIBUTION......................................................S-__
SECONDARY MARKET............................................................S-__
LEGAL OPINIONS..............................................................S-__
EXPERTS.....................................................................S-__
RATINGS.....................................................................S-__
LEGAL INVESTMENT............................................................S-__
ERISA CONSIDERATIONS........................................................S-__
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES
OFFERED HEREBY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF
THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series..................New Century Mortgage Securities, Inc. Mortgage
Pass-Through Certificates, Series ____-___.
Cut-off Date.....................________ __, ____.
Closing Date.....................On or about _______ __, ____.
Depositor........................New Century Mortgage Securities, Inc. The
Depositor will deposit the mortgage loans into
the trust. The Depositor's principal offices
are located at _______________________________
and its telephone number is _____________. SEE
"THE DEPOSITOR" IN THE PROSPECTUS.
Mortgage Loan Seller............._____________.
Master Servicer..................________________. SEE "THE MORTGAGE
POOL--UNDERWRITING STANDARDS; REPRESENTATIONS"
AND "POOLING AND SERVICING
AGREEMENT--____________" IN THIS PROSPECTUS
SUPPLEMENT.
Originators and Servicers........______________ and ____________. SEE "THE
MORTGAGE POOL--UNDERWRITING STANDARDS;
REPRESENTATIONS" AND "POOLING AND SERVICING
AGREEMENT--______________" AND
"--______________" IN THIS PROSPECTUS
SUPPLEMENT.
Trustee.........................._________________, a national banking
association, will be the Trustee of the trust.
SEE "POOLING AND SERVICING AGREEMENT--THE
TRUSTEE" IN THIS PROSPECTUS SUPPLEMENT.
Trust Administrator.............._________________, a national banking
association, will perform certain
administrative functions on behalf of the
Trustee and will act as the initial paying
agent, certificate registrar and custodian. SEE
"POOLING AND SERVICING AGREEMENT--TRUST
ADMINISTRATOR" IN THIS PROSPECTUS SUPPLEMENT.
Insurer.........................._________________. SEE "THE INSURER" HEREIN.
Distribution Dates...............Distributions on the offered certificates will
be made on the 25th day of each month, or, if
such day is not a business day, on the next
succeeding business day, beginning in _______
____.
Offered Certificates.............Only the certificates listed in the table below
are being offered pursuant to this prospectus
supplement. Each class of offered certificates
will have the approximate initial certificate
principal balance and fixed pass-through rate
set forth in the table below,
S-3
<PAGE>
[subject to the indicated limitation in the
case of the _________ certificates].
<TABLE>
<CAPTION>
==================================================================================================================
INITIAL CERTIFICATE PASS-THROUGH INITIAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE(1) RATE CLASS PRINCIPAL BALANCE(1) RATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A-1............ $___________ _____% A-5 . . . . . . $__________ _____%
A-2............ $___________ _____% A-6 . . . . . . $__________ _____%(2)
A-3............ $___________ _____% A-7 . . . . . . $__________ _____%
A-4............ $___________ _____%
==================================================================================================================
</TABLE>
(1) Approximate.
(2) The Pass-Through Rate will equal the lesser of the rate stated above and
the weighted average net mortgage rate.
- ----------------------
THE TRUST
The Depositor will establish a trust with respect to the Series ____-___
Certificates, pursuant to a pooling and servicing agreement dated as of _______
__, ____ among the depositor, the servicers, the trust administrator and the
trustee. There are _____ classes of certificates representing the trust. SEE
"DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
Each Series ____-___ Certificate will evidence a partial undivided interest in
the trust. Distributions of interest and/or principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described below and payments under the certificate insurance
policy.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate mortgage loans secured by first liens and second liens on residential
real properties. The mortgage loans have an aggregate principal balance of
approximately $___________ as of __________ ___, _____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of _______ __, _______:
- ----:
Range of mortgage rates _____% to ______%.
(approximate):
Weighted average mortgage _____%.
rate (approximate):
Weighted average remaining __ years and __ months.
term to stated maturity
(approximate):
Second lien mortgage loans ____%.
(approximate):
Balloon loans (approximate): _____%.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
S-4
<PAGE>
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table above in this prospectus supplement. The offered certificates
will be sold by the depositor to the underwriter on the closing date.
The offered certificates will initially be represented by one or more global
certificates registered in the name of CEDE & Co., as nominee of the Depository
Trust Company in minimum denominations of $[10,000] and integral multiples of
$[1.00] in excess thereof. SEE "DESCRIPTION OF THE CERTIFICATES --REGISTRATION
OF THE OFFERED CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
CLASS CE CERTIFICATES. The Class CE Certificates are one of the ______ classes
of certificates representing the trust, but are not offered hereby. The Class CE
Certificates will have an initial certificate principal balance of approximately
$__________, which is equal to the initial overcollateralization required by the
pooling and servicing agreement. The Class CE Certificates initially evidence an
interest of approximately ____% in the trust. The Class CE Certificates will be
sold by the Depositor to _______________ on the closing date.
CLASS P CERTIFICATES. The Class P Certificates are one of the ______ classes of
certificates representing the trust, but are not offered hereby. The Class P
Certificates will have an initial certificate principal balance of $___ and will
not be entitled to distributions in respect of interest. The Class P
Certificates will be entitled to all prepayment charges received in respect of
the mortgage loans. The Class P Certificates will be sold by the Depositor to
____________ on the closing date.
RESIDUAL CERTIFICATES. The Class R-I Certificates, the Class R-II Certificates
and the Class R-III Certificates are the classes of certificates representing
the residual interests in the trust, but are not offered hereby. Such
certificates will be sold by the Depositor to ______________ on the closing
date.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of the certificate insurance policy and
overcollateralization, each as described below and under "Description of the
Certificates--Credit Enhancement" and "--Overcollateralization Provisions" in
this prospectus supplement.
OVERCOLLATERALIZATION. The aggregate principal balance of the mortgage loans as
of _______ __, ____ will exceed the aggregate certificate principal balance of
the offered certificates and the Class P Certificates on the closing date by
approximately $__________, which is equal to the initial certificate principal
balance of the Class CE Certificates. Such amount represents approximately ____%
of the aggregate principal balance of the mortgage loans as of ________ __, ____
and is the initial amount of overcollateralization required to be provided by
the mortgage pool under the pooling and servicing agreement.
The pooling and servicing agreement provides, however, that subject to certain
trigger tests set forth therein, the required level of overcollateralization may
increase or decrease over time. SEE "DESCRIPTION OF THE
CERTIFICATES--OVERCOLLATERALIZATION PROVISIONS" IN THIS PROSPECTUS SUPPLEMENT.
CERTIFICATE INSURANCE POLICY. The offered certificates will be entitled to the
benefit of the certificate insurance policy to be issued by _____________. The
insurer will issue the certificate insurance policy as a means of providing
additional credit enhancement to the offered certificates. The certificate
insurance policy will irrevocably and unconditionally guarantee payment for the
benefit of the holders of the offered certificates of an amount that will cover
(i) any interest shortfalls (except for certain shortfalls as described herein)
allocated to the offered certificates, (ii) the amount by which (a) the
outstanding principal amount of the offered certificates exceeds (b) the
principal amount of the mortgage loans and (iii) without duplication of the
amount specified in clause (ii), the outstanding principal amount of the offered
certificates to the extent unpaid on the final distribution date or the
S-5
<PAGE>
earlier termination of the trust pursuant to the terms of the pooling and
servicing agreement. SEE "DESCRIPTION OF THE CERTIFICATES--FINANCIAL GUARANTY
INSURANCE POLICY" IN THIS PROSPECTUS SUPPLEMENT.
ALLOCATION OF LOSSES; SUBORDINATION. If, on any distribution date, there is not
sufficient excess interest or overcollateralization to absorb realized losses on
the mortgage loans as described under "Description of the
Certificates--Overcollateralization Provisions" herein, then realized losses on
the mortgage loans will be allocated to the offered certificates. The pooling
and servicing agreement does not permit the allocation of realized losses on the
mortgage loans to the Class P Certificates. Subject to the terms of the Policy,
all realized losses allocated to the offered certificates will be covered by the
certificate insurance policy. SEE "DESCRIPTION OF THE CERTIFICATES --ALLOCATION
OF LOSSES; SUBORDINATION" AND "--FINANCIAL GUARANTY INSURANCE POLICY" IN THIS
PROSPECTUS SUPPLEMENT.
P&I ADVANCES
Each Servicer is required to advance delinquent payments of principal and
interest on the mortgage loans that each services, subject to the limitations
described herein. Each Servicer is entitled to be reimbursed for such advances,
and therefore such advances are not a form of credit enhancement. SEE
"DESCRIPTION OF THE CERTIFICATES--P&I ADVANCES" IN THIS PROSPECTUS SUPPLEMENT
AND "DESCRIPTION OF THE SECURITIES--ADVANCES IN RESPECT OF DELINQUENCIES" IN THE
PROSPECTUS.
OPTIONAL TERMINATION
At its option, the majority holder of the Class CE Certificates (or if such
holder does not exercise such option, the Master Servicer or the Insurer) may
purchase all of the mortgage loans, together with any properties in respect
thereof acquired on behalf of the trust, and thereby effect termination and
early retirement of the certificates, after the aggregate principal balance of
the mortgage loans (and properties acquired in respect thereof) remaining in the
trust has been reduced to less than __% or __% (as further provided herein) of
the aggregate principal balance of the mortgage loans as of _______ __, ____.
SEE "POOLING AND SERVICING AGREEMENT-- TERMINATION" HEREIN AND "DESCRIPTION OF
THE SECURITIES-- TERMINATION" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the trust
as real estate mortgage investment conduits for federal income tax purposes. See
"Federal Income Tax Consequences--Characterization of Investments in REMIC
Certificates" in the prospectus.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive a rating of "Aaa" from _____________ ("______") and a
rating of "AAA" from _____________ ("____________").
The ratings on the offered certificates are based in part on the ratings of the
claims-paying ability of the Insurer by _______ and __________.
A security rating does not address the frequency of prepayments on the mortgage
loans or the corresponding effect on yield to investors. SEE "YIELD ON THE
CERTIFICATES" AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD
CONSIDERATIONS"
IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
because the mortgage pool includes certain mortgage loans that are secured by
subordinate liens on the related mortgaged properties. SEE "LEGAL INVESTMENT" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
S-6
<PAGE>
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23, to the Underwriter. Such exemption generally
exempts from the application of certain of the prohibited transaction provisions
of Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes imposed on such prohibited transactions
by Section 4975(a) and (b) of the Internal Revenue Code of 1986 (the "Code") and
Section 502(i) of ERISA, transactions relating to the purchase, sale and holding
of pass-through certificates underwritten by the Underwriter. Such exemption
generally applies to certificates such as the offered certificates, and the
servicing and operation of asset pools such as the mortgage pool, provided that
certain conditions are satisfied. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
S-7
<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this prospectus
supplement and the prospectus, prospective investors should carefully consider
the following factors before deciding to invest in the Offered Certificates.
[Appropriate Risk Factors as necessary]
[THE UNDERWRITING STANDARDS OF THE MORTGAGE LOANS ARE NOT AS STRINGENT AS THOSE
UNDERWRITTEN IN A MORE TRADITIONAL MANNER, OR UNDERWRITTEN TO THE STANDARDS OF
FANNIE MAE AND FREDDIE MAC, WHICH MAY RESULT IN LOSSES ALLOCATED TO THE OFFERED
CERTIFICATEHOLDERS
The originators' underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The originators provide loans
primarily to borrowers who do not qualify for loans conforming to Fannie Mae and
Freddie Mac guidelines but who generally have equity in their property. While
the originators' primary consideration in underwriting a mortgage loan is the
value of the mortgaged property, each originator also considers, among other
things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
Neither originator's underwriting standards prohibit a mortgagor from obtaining
secondary financing at the time of origination of such originator's first lien,
which secondary financing would reduce the equity the mortgagor would otherwise
have in the related mortgaged property as indicated in the related originator's
loan-to-value ratio determination.
As a result of such underwriting standards, the mortgage loans in the
mortgage pool are likely to experience rates of delinquency, foreclosure and
bankruptcy that are higher, and that may be substantially higher, than those
experienced by mortgage loans underwritten in a more traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITING STANDARDS; REPRESENTATIONS" HEREIN].
[THE PAYMENT PERFORMANCE OF THE CERTIFICATES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE TRUST FUND; GREATER RISK OF LOSS IS
ASSOCIATED WITH CERTAIN MORTGAGE LOANS.
The certificates represent an interest in mortgage loans. In the event that
the mortgaged properties fail to provide adequate security for the mortgage
loans included in the trust fund, any resulting losses, to the extent not
covered by the credit enhancement, will be allocated to the certificates as
described in this prospectus supplement, and consequently may adversely affect
the yield to maturity on your certificate. The depositor cannot assure you that
the values of the mortgaged properties have remained or will remain at the
appraised values on the dates of origination of the mortgage loans. Certain
types of mortgage loans may have a greater likelihood of delinquency and
foreclosure, and a greater likelihood of loss in the event thereof. You should
consider the following risks associated with the mortgage loans included in the
trust fund: [AS APPLICABLE]
NEGATIVELY AMORTIZING LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of _______________, are subject to negative
amortization. In the case of mortgage loans that are subject to negative
amortization, the principal balances of such mortgage loans could be increased
to an amount equal to or in excess of the value of the underlying mortgaged
properties, thereby increasing the likelihood of default. To the extent that
such losses are not covered the credit enhancement in the trust fund, holders of
the certificates will bear all risk of loss resulting from default by mortgagors
and will have to look
S-8
<PAGE>
primarily to the value of the mortgaged properties for recovery of the
outstanding principal and unpaid interest on the defaulted mortgage loans.
BUYDOWN MORTGAGE LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of _________________ are buydown mortgage loans,
subject to temporary buydown plans pursuant to which the monthly payments made
by the mortgagor during the early years of such mortgage loan will be less than
the scheduled monthly payments on the mortgage loan, the resulting difference to
be made up from (a) an amount contributed by the borrower, the seller of the
mortgaged property or another source and placed in a custodial account, (b)
investment earnings on the amount, if any, contributed by the borrower, or (c)
additional buydown funds to be contributed over time by the mortgagor's employer
or another source. Generally, the mortgagor under each buydown mortgage loan
will be qualified at the applicable lower monthly payment. Accordingly, the
repayment of a buydown mortgage loan is dependent on the ability of the
mortgagor to make larger level monthly payments after the buydown funds have
been depleted and, for certain buydown mortgage loans, during the initial
buydown period. The inability of a mortgagor to make such larger monthly
payments could lead to losses on such mortgage loans, and to the extent not
covered by the credit enhancement, may adversely affect the yield to maturity on
your certificates.
BALLOON LOANS. Approximately ___% of the mortgage loans by aggregate
principal balance as of ________________ may not be fully amortizing, or may not
amortize at all, over their terms to maturity and, thus, will require
substantial payments of principal and interest, that is, balloon payments, at
their stated maturity. Mortgage loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a mortgagor to make a
balloon payment typically will depend upon its ability either to fully refinance
the loan or to sell the related mortgaged property at a price sufficient to
permit the mortgagor to make the balloon payment. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related mortgaged property, the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in the
related mortgaged property, prevailing general economic conditions and the
availability of credit for loans secured by comparable real properties.
NON-OWNER-OCCUPIED PROPERTIES. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________ are nonrecourse loans or
loans for which recourse may be restricted or unenforceable. As to those
mortgage loans, recourse in the event of mortgagor default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the mortgage loan. However, even with respect to those mortgage loans that
provide for recourse against the mortgagor and its assets generally, there can
be no assurance that enforcement of such recourse provisions will be
practicable, or that the other assets of the mortgagor will be sufficient to
permit a recovery in respect of a defaulted mortgage loan in excess of the
liquidation value of the related mortgaged property.
HOME EQUITY LINE OF CREDIT LOANS. Approximately ___% of the mortgage loans
by aggregate principal balance as of ________________ are mortgage loans that
provide the borrower with a line of credit pursuant to which amounts may be
advanced to the borrower by the lender from time to time. Collection on these
types of mortgage loans may vary because, among other things, (1) borrowers may
make payments during any month as low as the minimum monthly payment for such
month, or just the interest and fees for such month during any interest-only
period, or (2) borrowers may make payments as high as the entire outstanding
charges thereon. It is possible that borrowers may fail to make the required
periodic payment and, to the extent not covered by the credit enhancement, such
losses may adversely affect the yield to maturity on your certificates.
NON-CONFORMING LOANS. Approximately ___% of the mortgage loans by aggregate
principal balance as of ________________ are non-conforming mortgage loans.
Non-conforming mortgage loans are mortgage loans that do not qualify for
purchase by government sponsored agencies such as Fannie Mae and Freddie Mac due
to credit characteristics that to not satisfy such Fannie Mae and Freddie Mac
guidelines, including mortgagors whose creditworthiness and repayment ability do
not satisfy such Fannie Mae and Freddie Mac underwriting guidelines and
mortgagors who may have a record of credit write-offs, outstanding judgments,
S-9
<PAGE>
prior bankruptcies and other derogatory credit items. Accordingly,
non-conforming mortgage loans are likely to experience rates of delinquency,
foreclosure and loss that are higher, and that may be substantially higher, than
mortgage loans originated in accordance with Fannie Mae or Freddie Mac
underwriting guidelines. The principal differences between conforming mortgage
loans and non-conforming mortgage loans include the applicable loan-to-value
ratios, the credit and income histories of the related mortgagors, the
documentation required for approval of the related mortgage loans, the types of
properties securing the mortgage loans, the loan sizes and the mortgagors'
occupancy status with respect to the mortgaged properties. As a result of these
and other factors, the interest rates charged on non-conforming mortgage loans
are often higher than those charged for conforming mortgage loans. The
combination of different underwriting criteria and higher rates of interest may
also lead to higher delinquency, foreclosure and losses on non-conforming
mortgage loans as compared to conforming mortgage loans.
JUNIOR LIEN MORTGAGE LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________ are mortgage loans secured by
junior liens and with respect to approximately ___% of such junior liens, the
related senior liens are not included in the trust fund. The primary risk to
holders of mortgage loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior liens to satisfy fully both the senior liens and the junior lien
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the mortgage loan, if such proceeds are sufficient, before the trust fund as
holder of the junior lien receives any payments in respect of the mortgage loan.
If the master servicer were to foreclose on any junior lien mortgage loan, it
would do so subject to any related senior liens. In order for the debt related
to the mortgage loan to be paid in full at such sale, a bidder at the
foreclosure sale of a junior lien mortgage loan would have to bid an amount
sufficient to pay off all sums due under the junior lien mortgage loan and the
senior liens or purchase the mortgaged property subject to the senior liens. In
the event that such proceeds from a foreclosure or similar sale of the related
mortgaged property are insufficient to satisfy all senior liens and the mortgage
loan in the aggregate, the trust fund, as the holder of the junior lien, and,
accordingly, holders of the certificates bear (a) the risk of delay in
distributions while a deficiency judgment against the borrower is obtained and
(b) the risk of loss if the deficiency judgment is not realized upon. Moreover,
deficiency judgments may not be available in certain jurisdictions. In addition,
a junior mortgagee may not foreclose on the property securing a junior mortgage
unless it forecloses subject to the senior mortgages.
Liquidation expenses with respect to defaulted junior mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that the master servicer took the same steps in
realizing upon a defaulted junior mortgage loan having a small remaining
principal balance as it would in the case of a defaulted junior mortgage loan
having a large remaining principal balance, the amount realized after expenses
of liquidation would be smaller as a percentage of the outstanding principal
balance of the small junior mortgage loan than would be the case with the
defaulted junior mortgage loan having a large remaining principal balance.
Because the average outstanding principal balance of the junior lien mortgage
loans is smaller relative to the size of the average outstanding principal
balance of the loans in a typical pool of first priority mortgage loans,
liquidation proceeds may also be smaller as a percentage of the principal
balance of a mortgage loan than would be the case in a typical pool of first
priority mortgage loans.
An overall decline in the residential real estate market could adversely
affect the values of the mortgaged properties securing the mortgage loans with
junior liens such that the outstanding principal balances, together with any
senior financing thereon, exceeds the value of the mortgaged properties. Since
mortgage loans secured by junior liens are subordinate to the rights of the
beneficiaries under the related senior deeds of trust or senior mortgages, such
a decline would adversely affect the position of the related junior beneficiary
or junior mortgagee before having such an effect on the position of the related
senior beneficiaries or senior
S-10
<PAGE>
mortgagees. A rise in interest rates over a period of time, the general
condition of the mortgaged property and other factors may also have the effect
of reducing the value of the mortgaged property from the value at the time the
junior lien mortgage loan was originated. As a result, the loan-to-value ratio
may exceed the ratio in effect at the time the mortgage loan was originated.
Such an increase may reduce the likelihood that, in the event of a default by
the related mortgagor, liquidation or other proceeds will be sufficient to
satisfy the junior lien mortgage loan after satisfaction of any senior liens and
the payment of any liquidation expenses.
Other factors may affect the prepayment rate of junior lien mortgage loans,
such as the amounts of, and interest on, the related senior mortgage loans and
the use of senior lien mortgage loans as long-term financing for home purchases
and junior lien mortgage loans as shorter-term financing for a variety of
purposes, such as home improvement, educational expenses and purchases of
consumer durable such as automobiles. Accordingly, junior lien mortgage loans
may experience a higher rate of prepayments than traditional senior lien
mortgage loans. In addition, any future limitations on the rights of borrowers
to deduct interest payments on junior lien mortgage loans for federal income tax
purposes may further increase the rate of prepayments on such junior lien
mortgage loans.
PUERTO RICO AND GUAM LOANS. Approximately ___% of the mortgage loans by
aggregate principal balance as of ________________, are mortgage loans secured
by properties located in Puerto Rico and Guam. The risk of loss on mortgage
loans secured by properties located in Puerto Rico and Guam may be greater than
on mortgage loans that are made to mortgagors who are United States residents
and citizens or that are secured by properties located in the United States. In
particular, the procedure for the foreclosure of a real estate mortgage under
the laws of the Commonwealth of Puerto Rico varies from the procedures generally
applicable in each of the fifty states of the United States which may affect the
satisfaction of the related mortgage loan. In addition, the depositor is not
aware of any historical prepayment experience with respect to mortgage loans
secured by properties located in Puerto Rico or Guam and, accordingly,
prepayments on such loans may not occur at the same rate or be affected by the
same factors as other mortgage loans.
MORTGAGE LOANS WITH HIGH LOAN-TO-VALUE RATIOS. Approximately _____% of the
mortgage loans, by aggregate principal balance as of _______ __, ____, had a
loan-to-value ratio (or a combined loan-to-value ratio, in the case of any
second lien mortgage loan) at origination in excess of 80%. No mortgage loan in
the mortgage pool with a loan-to-value ratio (or a combined loan-to-value ratio,
in the case of any second lien mortgage loan) at origination in excess of 80%
will be covered by a primary mortgage insurance policy. No first lien mortgage
loan will have a loan-to-value ratio exceeding __% at origination and no second
lien mortgage loan will have a combined loan-to-value ratio exceeding _____% at
origination. Mortgage loans with higher loan-to-value ratios may present a
greater risk of loss in that an overall decline in the residential real estate
market, a rise in interest rates over a period of time and the general condition
of a mortgaged property, as well as other factors, may have the effect of
reducing the value of such mortgaged property from the appraised value at the
time the mortgage loan was originated. If there is a reduction in value of the
mortgaged property, the loan-to-value ratio may increase over what it was at the
time the mortgage loan was originated. Such an increase may reduce the
likelihood of liquidation or other proceeds being sufficient to satisfy the
mortgage loan and any losses, to the extent not covered by the credit
enhancement, may affect the yield to maturity or your certificates. There can be
no assurance that the loan-to-value ratio of any mortgage loan determined at any
time after origination is less than or equal to its original loan-to-value
ratio.
MORTGAGE LOANS THAT ARE DELINQUENT AS OF THE CUT-OFF DATE. Approximately
____% of the mortgage loans, by aggregate principal balance as of _______ __,
____, were thirty days or more but less than sixty days delinquent in their
monthly payments as of ______ __, ____. Approximately ____% of the mortgage
loans, by aggregate principal balance as of _______ __, ____, were sixty days or
more but less than ninety days delinquent in their monthly payments as of the
_______ __, ____. However, investors in the mortgage loans should realize that
approximately _____% of the mortgage loans, by aggregate principal balance as of
_______ __, ____, have a first payment date occurring on or after _______ __,
____ and, therefore, such mortgage loans could not have been delinquent as of
_______ __, ____].
S-11
<PAGE>
[THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF ________ AND THE STATE OF
______, WHICH MAY PRESENT A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE
LOANS
Approximately _____% and _____% of the mortgage loans, in each case, by
aggregate principal balance as of _______ __, ____, are secured by mortgaged
properties located in the State of ________ and the State of ________,
respectively. The aggregate principal balance of mortgage loans in the ________
zip code with the largest amount of such mortgage loans, by aggregate principal
balance as of ________ __, ____, was approximately $_________. If the _________
or ________ residential real estate market should experience an overall decline
in property values after the dates of origination of the mortgage loans, the
rates of delinquencies, foreclosures, bankruptcies and losses on the mortgage
loans may increase over historical levels of comparable type loans, and may
increase substantially].
[THE CERTIFICATES ARE OBLIGATIONS OF THE TRUST ONLY
The certificates will not represent an interest in or obligation of the
depositor, the servicers, the mortgage loan seller, the trustee, the trust
administrator or any of their respective affiliates. Neither the certificates
nor the underlying mortgage loans will be guaranteed or insured by any
governmental agency or instrumentality, or by the depositor, the servicers, the
trustee, the trust administrator or any of their respective affiliates. The
offered certificates are covered by the certificate insurance policy, as and to
the extent described under the caption "Description of the
Certificates--Financial Guaranty Insurance policy" herein. Proceeds of the
assets included in the trust and proceeds from the certificate insurance policy
will be the sole source of payments on the offered certificates, and there will
be no recourse to the depositor, the servicers, the mortgage loan seller, the
trustee, the trust administrator or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the offered certificates].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES WILL
BE AFFECTED BY PREPAYMENT SPEEDS AND BY THE PRIORITY OF PAYMENT ON SUCH
CERTIFICATES
The rate and timing of distributions allocable to principal on the offered
certificates will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the offered certificates as provided herein. As is the case with mortgage
pass-through certificates generally, the offered certificates are subject to
substantial inherent cash-flow uncertainties because the mortgage loans may be
prepaid at any time. However, with respect to approximately _____% of the
mortgage loans, by aggregate principal balance as of _______ __, ____, a
prepayment may subject the related mortgagor to a prepayment charge, which may
act as a deterrent to prepayment of such mortgage loan.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease; a decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of principal to investors
in the offered certificates at a time when reinvestment at such higher
prevailing rates would be desirable. Conversely, when prevailing interest rates
are declining, prepayment rates on mortgage loans tend to increase; an increase
in the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the offered certificates at a time when
reinvestment at comparable yields may not be possible.
Except as otherwise described herein, distributions of principal will be
made to the classes of offered certificates according to the priorities
described herein, rather than on a PRO RATA basis among such classes. The timing
of commencement of principal distributions and the weighted average life of each
such class of certificates will be affected by the rates of prepayment on the
mortgage loans experienced both before and after the commencement of principal
distributions on such class.
During certain periods, no principal payments or a disproportionately small
portion of the amount of principal then payable to the offered certificates will
be distributed on the Class ___ Certificates. During
S-12
<PAGE>
certain other periods, a disproportionately large portion of the amount of
principal then payable to the offered certificates will be distributed on the
Class ___ Certificates as more fully described herein.
FOR FURTHER INFORMATION REGARDING THE EFFECT OF PRINCIPAL PREPAYMENTS ON
THE WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES, SEE "YIELD ON THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT, INCLUDING THE TABLE ENTITLED
"PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF THE PREPAYMENT ASSUMPTION"].
[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON A VARIETY OF
FACTORS
The yield to maturity on the offered certificates will depend, in general,
on:
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
mortgage loans, payments by the Insurer, and the allocation thereof to
reduce the certificate principal balance of such certificates, as well
as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans
not covered by the Insurer.
In general, if the offered certificates are purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if the offered certificates
are purchased at a discount and principal distributions thereon occur at a rate
slower than that anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that originally assumed.
The proceeds to the Depositor from the sale of the offered certificates
were determined based on a number of assumptions, including a prepayment
assumption of ___% of the prepayment vector (as more fully described herein) and
weighted average lives corresponding thereto. No representation is made that the
mortgage loans will prepay at such rate or at any other rate. The yield
assumptions for the offered certificates will vary as determined at the time of
sale].
[THE YIELD TO MATURITY ON CERTAIN CLASSES OF THE OFFERED CERTIFICATES WILL BE
PARTICULARLY SENSITIVE TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS,
ESPECIALLY THE CLASS ___ CERTIFICATES
The multiple class structure of the offered certificates causes the yield
of certain classes to be particularly sensitive to changes in the rates of
prepayments of the mortgage loans. Because distributions of principal will be
made to the classes of offered certificates according to the priorities
described herein, the yield to maturity on such classes of certificates will be
sensitive to the rates of prepayment on the mortgage loans experienced both
before and after the commencement of principal distributions on such class.
In particular, the Class ___ Certificates do not receive (unless the
certificate principal balances of the other classes of offered certificates have
been reduced to zero) any portion of principal payments prior to the
distribution date in _______ ____. In addition, the Class ___ Certificates will
receive (unless the certificate principal balances of the other classes of
offered certificates have been reduced to zero) a disproportionately small or
large portion of the amount of principal then payable to the offered
certificates thereafter. Therefore, the weighted average life of the Class ___
Certificates will be longer or shorter than would otherwise be the case. The
effect on the market value of the Class ___ Certificates of changes in market
interest rates or market yields for similar securities may be greater or lesser
than for the other classes of offered certificates entitled to principal
distributions].
[VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
S-13
<PAGE>
Applicable state laws generally regulate interest rates and other charges,
require certain disclosure, and require licensing of the Originators. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers
regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
and
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience.
Approximately ____% of the mortgage loans, by aggregate principal balance
as of _______ __, ____, will be subject to the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), which incorporates the
Home Ownership and Equity Protection Act of 1994. The Riegle Act adds certain
additional provisions to Regulation Z, which is the implementing regulation of
the Federal Truth-in- Lending Act. These provisions impose additional disclosure
and other requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates or high up-front fees and charges. In general,
mortgage loans within the purview of the Riegle Act have annual percentage rates
over 10% greater than the yield on treasury securities of comparable maturity
and/or fees and points which exceed the greater of 8% of the total loan amount
or $441 (the $441 amount is adjusted annually based on changes in the Consumer
Price Index for the year). The provisions of the Riegle Act apply on a mandatory
basis to all applicable mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage loan.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the related
Originator to damages and administrative enforcement.
Each Originator will represent that as of the closing date, each mortgage
loan originated by it is in compliance with applicable federal and state laws
and regulations. In the event of a breach of such representation, such
Originator will be obligated to cure such breach or repurchase or replace the
affected mortgage loan in the manner described in the prospectus].
[IF THE INSURER FAILS TO MEET ITS OBLIGATIONS UNDER THE POLICY, HOLDERS OF THE
OFFERED CERTIFICATES MAY EXPERIENCE A LOSS ON THEIR INVESTMENT
If the protection created by the overcollateralization is insufficient and
the Insurer is unable to meet its obligations under the certificate insurance
policy, then you could experience a loss of some of your investment. In
addition, any reduction in a rating of the claims-paying ability of the insurer
may result in a reduction in the rating of the offered certificates].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE SERVICERS TO PERFORM
THEIR DUTIES
S-14
<PAGE>
As is the case with most companies using computers in their operations,
each servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the servicers' computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any such occurrence could result in major computer system
failure or miscalculations. Each servicer is presently engaged in various
procedures to ensure that its computer systems and software will be year 2000
compliant. However, in the event that the related servicer or any of its
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the performance of obligations of such servicer under the
pooling and servicing agreement could be materially adversely affected].
Capitalized terms used but not defined herein have the meanings assigned to
them in the prospectus. An Index of Principal Definitions is included at the end
of the prospectus.
USE OF PROCEEDS
_______________ (the "Mortgage Loan Seller") will sell the Mortgage Loans
(as defined herein) to New Century Mortgage Securities, Inc. (the "Depositor")
and the Depositor will convey the Mortgage Loans to the Trust Fund (as defined
herein) in exchange for and concurrently with the delivery of the Certificates
(as defined herein). Net proceeds from the sale of the Certificates will be
applied by the Depositor to the purchase of the Mortgage Loans from the Mortgage
Loan Seller. Such net proceeds will represent the purchase price to be paid by
the Depositor to the Mortgage Loan Seller for the Mortgage Loans. Such Mortgage
Loans were previously purchased by the Mortgage Loan Seller either directly or
indirectly from _____________ and ______________ (in such capacities, each an
"Originator").
THE MORTGAGE POOL
GENERAL
The pool of Mortgage Loans (the "Mortgage Pool") will consist of
approximately _____ conventional, one- to four-family, fixed-rate mortgage loans
(the "Mortgage Loans") secured by first liens or second liens on residential
real properties (the "Mortgaged Properties") and having an aggregate principal
balance as of _______ __, ____ (the "Cut-off Date") of approximately
$___________, after application of scheduled payments due on or before the
Cut-off Date whether or not received and subject to a permitted variance of plus
or minus [5]%. The Mortgage Loans have original terms to maturity of not greater
than [30] years.
References to percentages of the Mortgage Loans, unless otherwise noted,
are calculated based on the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date.
The Mortgage Loans are secured by first or second mortgages or deeds of
trust or other similar security instruments creating first liens or second liens
on residential properties consisting of attached, detached or semi-detached,
one- to four-family dwelling units, townhouses, individual condominium units,
individual units in planned unit developments and manufactured housing. The
Mortgage Loans to be included in the Mortgage Pool will be acquired by the
Depositor from the Mortgage Loan Seller, who acquired the Mortgage Loans either
directly or indirectly from the Originators. _______________ will act as the
master servicer (in such capacity, the "Master Servicer") pursuant to the
Agreement (as defined herein) for the Mortgage Loans and each of the Master
Servicer and ________________ will act as the servicer (in such capacities,
each, a "Servicer") pursuant to the Agreement for the Mortgage Loans originated
by it. See "--Underwriting Standards; Representations" in this prospectus
supplement
S-15
<PAGE>
__________ Mortgage Loans, representing approximately ____% of the Mortgage
Loans, have first payment dates occurring in _________ ____. With respect to
such Mortgage Loans, no principal amortization payments will be distributed in
_______ ____ unless principal payments thereon are received in the Prepayment
Period applicable to the Distribution Date occurring in _______ ____. On the
Closing Date, however, cash will be deposited with the Trust Administrator in an
amount equal to interest accrued on such Mortgage Loans (net of the related
Servicing Fee (as defined herein)) for the related Interest Accrual Period for
distribution to the holders of the Offered Certificates on the first
Distribution Date.
The Mortgage Loans have scheduled monthly payments due generally on the
first day of the month (with respect to each Mortgage Loan, a "Due Date"). Each
Mortgage Loan will contain a customary "due-on-sale" clause.
Approximately _____% of the Mortgage Loans provide for payment by the
mortgagor of a prepayment charge (a "Prepayment Charge") in limited
circumstances on certain prepayments as provided in the related Mortgage Note.
Such Mortgage Loans provide for payment of a Prepayment Charge on certain
partial prepayments and all prepayments in full made within a specified period
not in excess of ____ years from the date of origination of such Mortgage Loan,
as provided in the related Mortgage Note. The amount of the Prepayment Charge is
as provided in the related Mortgage Note, but is generally equal to _____
month's interest on any amounts prepaid in excess of __% of the then outstanding
principal balance of the related Mortgage Loan in any __ month period, as
permitted by law. The holders of the Class P Certificates will be entitled to
all Prepayment Charges received on the Mortgage Loans, and such amounts will not
be available for distribution on the other classes of Certificates. Under
certain instances, as described in the Agreement, the applicable Servicer may
waive the payment of any otherwise applicable Prepayment Charge. Investors
should conduct their own analysis of the effect, if any, that the Prepayment
Charges, and decisions by the Servicers with respect to the waiver thereof, may
have on the prepayment performance of the Mortgage Loans. The Depositor makes no
representation as to the effect that the Prepayment Charges, and decisions by
the Servicers with respect to the waiver thereof, may have on the prepayment
performance of the Mortgage Loans.
Approximately ___% of the Mortgage Loans are Buydown Mortgage Loans.
Approximately _____% of the Mortgage Loans are balloon loans ("Balloon
Loans"). Each Balloon Loan amortizes over ___ months, but the final payment (the
"Balloon Payment") on each Balloon Loan is due and payable on the ___th month.
The amount of the Balloon Payment on each Balloon Loan is substantially in
excess of the amount of the scheduled monthly payment on such Balloon Loan for
the period prior to the Due Date of such Balloon Payment.
The average principal balance of the Mortgage Loans at origination was
approximately $______. No Mortgage Loan had a principal balance at origination
greater than approximately $_________ or less than approximately $_____. The
average principal balance of the Mortgage Loans as of the Cut-off Date was
approximately $______. No Mortgage Loan had a principal balance as of the
Cut-off Date greater than approximately $_________ or less than approximately
$_____.
The Mortgage Loans had Mortgage Rates as of the Cut-off Date ranging from
approximately _____% per annum to approximately ______% per annum, and the
weighted average Mortgage Rate was approximately _____% per annum.
The weighted average loan-to-value ratio (or combined loan-to-value ratio,
in the case of second lien Mortgage Loans) of the Mortgage Loans at origination
was approximately _____%. At origination, no Mortgage Loan will have a
loan-to-value ratio (or combined loan-to-value ratio, in the case of any second
lien Mortgage Loan) greater than approximately _____% or less than approximately
____%.
S-16
<PAGE>
Approximately ____% of the Mortgage Loans are secured by second liens on
the related Mortgaged Property.
The weighted average remaining term to stated maturity of the Mortgage
Loans will be approximately __ years and __ months as of the Cut-off Date. None
of the Mortgage Loans will have a first Due Date prior to ______ ____ or after
_________ ____, or will have a remaining term to stated maturity of less than __
years and __ months or greater than [30] years as of the Cut-off Date. The
latest maturity date of any Mortgage Loan is _______ ____.
The Mortgage Loans are expected to have the following characteristics as of
the Cut-off Date (the sum in any column may not equal the total indicated due to
rounding):
S-17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
NUMBER AGGREGATE ORIGINAL AGGREGATE ORIGINAL
RANGE ($) OF LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------- -------- ----------------- -----------------
<S> <C> <C> <C>
- . . . . . . . . . . . .
- . . . . . . . . . . . .
- . . . . . . . . . . . .
- . . . . . . . . . . . .
Total.............................................
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- -------- ---------------- ----------------
<S> <C> <C> <C>
- . . . . . . . . . . .
- . . . . . . . . . . .
- . . . . . . . . . . .
- . . . . . . . . . . .
Total..........................................
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
- ................................................
- ................................................
- ................................................
- ................................................
Total.............................................
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS(1)
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ---------------- ----------------
<S> <C> <C> <C>
- .....................................................
- .....................................................
- .....................................................
- .....................................................
Total..............................................
</TABLE>
(1) References to loan-to-value ratios are references to combined loan-to-value
ratios with respect to second lien Mortgage Loans.
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
<TABLE>
<CAPTION>
PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
Total..............................................
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE _____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
.......................................................
........................................................
Total..............................................
</TABLE>
* Underwritten pursuant to the Mortgage Credit Only program.
** Underwritten pursuant to the Home Saver program.
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE __________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
.......................................................
Total..............................................
</TABLE>
UNDERWRITING STANDARDS; REPRESENTATIONS
The Mortgage Loans will be acquired by the Depositor from the Mortgage Loan
Seller. The Mortgage Loan Seller will have acquired, either directly or
indirectly, approximately _____% of the Mortgage Loans (the "___________
Mortgage Loans"), by aggregate principal balance as of the Cut-off Date, from
______________ ("_________"). The Mortgage Loan Seller will have acquired
approximately _____% of the Mortgage Loans (the "__________ Mortgage Loans"), by
aggregate principal balance as of the Cut-off Date, from ______________
("________"). All of the Mortgage Loans were originated or acquired by the
Originators generally in accordance with the underwriting criteria described
below.
The information set forth below with regard to the Originators'
underwriting standards has been provided to the Depositor or compiled from
information provided to the Depositor by the Originators. None of the Depositor,
the Trustee, the Trust Administrator, the Mortgage Loan Seller, the Underwriter
or any of their respective affiliates has made any independent investigation of
such information or has made or will make any representation as to the accuracy
or completeness of such information.
The Originators' underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. All of the Mortgage Loans were
also underwritten with a view toward the resale thereof in the secondary
mortgage market. While the Originators' primary consideration in underwriting a
mortgage loan is the value of the mortgaged property, the Originators also
consider, among other things, a mortgagor's credit history,
S-21
<PAGE>
repayment ability and debt service-to-income ratio, as well as the type and use
of the mortgaged property. The Mortgage Loans generally bear higher rates of
interest than mortgage loans that are originated in accordance with Fannie Mae
and Freddie Mac standards, which is likely to result in rates of delinquencies
and foreclosures that are higher, and that may be substantially higher, than
those experienced by portfolios of mortgage loans underwritten in a more
traditional manner.
As a result of the Originators' underwriting criteria, changes in the
values of Mortgaged Properties may have a greater effect on the delinquency,
foreclosure and loss experience on the Mortgage Loans than such changes would be
expected to have on mortgage loans that are originated in a more traditional
manner. No assurance can be given that the values of the related Mortgaged
Properties have remained or will remain at the levels in effect on the dates of
origination of the related Mortgage Loans.
[ORIGINATOR'S UNDERWRITING PROGRAMS]
[Discussion of Underwriting Programs used by Originator 1 to originate
mortgage loans such as those in the securitization]
[ORIGINATOR'S UNDERWRITING PROGRAMS]
[Discussion of Underwriting Programs used by Originator 2 to originate
mortgage loans such as those in the securitization]
ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted as of the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described in this prospectus supplement.
The Depositor believes that the information set forth in this prospectus
supplement will be representative of the characteristics of the Mortgage Pool as
it will be constituted at the time the Certificates are issued, although the
range of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans may vary.
S-22
<PAGE>
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the Offered Certificates of each class
will be less than the yields otherwise produced by their respective Pass-Through
Rates (as defined herein) and purchase prices because (i) on the first
Distribution Date one month's interest is payable thereon even though __ days
will have elapsed from the date on which interest begins to accrue thereon, (ii)
on each succeeding Distribution Date the interest payable thereon is the
interest accrued during the month preceding the month of such Distribution Date,
which ends 24 days prior to such Distribution Date and (iii) during each
Interest Accrual Period (as defined herein) (other than the first Interest
Accrual Period), interest accrues on a Certificate Principal Balance that may be
less than the Certificate Principal Balance of such class actually outstanding
for the first 24 days of such Interest Accrual Period.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is not charged interest on the amount of such prepayment for the month
in which such prepayment is made. In addition, the application of the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), to any
Mortgage Loan will adversely affect, for an indeterminate period of time, the
ability of applicable Servicer to collect full amounts of interest on such
Mortgage Loan. See "Certain Legal Aspects of the Mortgage Loans--Soldiers' and
Sailors' Civil Relief Act of 1940" in the prospectus. Each Servicer is obligated
to pay from its own funds only those interest shortfalls attributable to full
and partial prepayments by the mortgagors on the related Mortgage Loans, but
only to the extent of its Servicing Fee for the related Due Period (as defined
herein). See "Pooling and Servicing Agreement--Servicing and Other Compensation
and Payment of Expenses" in this prospectus supplement. Accordingly, the effect
of (i) any principal prepayments on the Mortgage Loans, to the extent that any
resulting shortfall (a "Prepayment Interest Shortfall") exceeds any payments
made by the applicable Servicer from its own funds ("Compensating Interest") or
(ii) any shortfalls resulting from the application of the Relief Act, will be to
reduce the aggregate amount of interest collected that is available for
distribution to Certificateholders. Any such shortfalls will be allocated among
the Certificates as provided under "Description of the Certificates--Interest
Distributions on the Offered Certificates" and "--Overcollateralization
Provisions" in this prospectus supplement. The Policy will not cover any
shortfalls resulting from application of the Relief Act.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity of
the Offered Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. Furthermore, since mortgage loans secured by
second liens are not generally viewed by borrowers as permanent financing and
generally carry a high rate of interest, the Mortgage Loans may experience a
higher rate of prepayments than traditional mortgage loans. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of such Mortgage Loans and by the rate of principal
prepayments thereon (including for this purpose, payments resulting from
refinancings, liquidations of the Mortgage Loans due to defaults, casualties,
condemnations and repurchases, whether optional or required, by the Depositor,
the Originators, the Mortgage Loan Seller, the majority holder of the Class CE
Certificates, the Insurer or the Master Servicer, as the case may be). The
Mortgage Loans generally may be prepaid by the mortgagors at any time; however,
as described under "The Mortgage Pool" in this prospectus supplement, with
respect to approximately _____% of the Mortgage Loans, by aggregate principal
balance as of the Cut-off Date, a prepayment may subject the related mortgagor
to a Prepayment Charge.
S-23
<PAGE>
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in distributions in respect of principal to the holders of the Offered
Certificates that otherwise would be distributed over the remaining terms of the
Mortgage Loans. See "Maturity and Prepayment Considerations" in the prospectus.
Since the rates of payment of principal on the Mortgage Loans will depend on
future events and a variety of factors (as described more fully in this
prospectus supplement and in the prospectus under "Yield Considerations" and
"Maturity and Prepayment Considerations"), no assurance can be given as to such
rate or the rate of principal prepayments. The extent to which the yield to
maturity of the Offered Certificates may vary from the anticipated yield will
depend upon the degree to which the Offered Certificates are purchased at a
discount or premium and the degree to which the timing of payments thereon is
sensitive to prepayments on the Mortgage Loans. Further, an investor should
consider, in the case of any Offered Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. In general, the earlier a prepayment of principal is made on
the Mortgage Loans, the greater the effect on the yield to maturity of the
Offered Certificates. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Offered Certificates would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments.
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate. Moreover, the timing of prepayments on the Mortgage Loans may
significantly affect the actual yield to maturity on the Offered Certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of the Certificates. See
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
Because principal distributions are paid to certain classes of Offered
Certificates before other such classes, holders of classes of Offered
Certificates having a later priority of payment bear a greater risk of losses
(because such Certificates will represent an increasing percentage interest in
the Trust Fund during the period prior to the commencement of distributions of
principal thereon) than holders of classes having earlier priorities for
distribution of principal. In particular, with respect to the Lockout
Certificates (as defined herein), as described under "Description of the
Certificates--Principal Distributions on the Offered Certificates" in this
prospectus supplement, during certain periods, no principal payments or a
disproportionately small portion of the amount of principal then payable to the
Offered Certificates will be distributed on the Lockout Certificates, and during
certain other periods, a disproportionately large portion of the amount of
principal then payable to the Offered Certificates will be distributed on the
Lockout Certificates. Unless the Certificate Principal Balances of the Offered
Certificates (other than the Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal payments prior to the Distribution Date in _______ ____.
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years and the rate of defaults and the severity of
losses on mortgage loans secured by second liens may be substantially higher
than mortgage loans secured by first liens. In addition, default rates may be
higher for mortgage loans used to refinance an existing mortgage loan. In the
event of a mortgagor's default on a
S-24
<PAGE>
Mortgage Loan, other than as provided by the Policy as described in this
prospectus supplement, there can be no assurance that recourse will be available
beyond the specific Mortgaged Property pledged as security for repayment. See
"The Mortgage Pool--Underwriting Standards; Representations" in this prospectus
supplement.
MARKET INTEREST RATE CONSIDERATIONS
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Offered Certificates are fixed, such rates will not change in response to
changes in market interest rates. Accordingly, if mortgage market interest rates
or market yield for securities similar to such Offered Certificates were to
rise, the market value of such Offered Certificates may decline.
BALLOON PAYMENTS
The Mortgage Loans with Balloon Payments will not be fully-amortizing
over their terms to maturity, and will require substantial principal payments at
their stated maturity. Mortgage Loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a borrower to make a
Balloon Payment typically will depend upon the borrower's ability either to
fully refinance the loan or to sell the related Mortgaged Property at a price
sufficient to permit the borrower to make the Balloon Payment. The ability of a
borrower to accomplish either of these goals will be affected by a number of
factors, including the value of the related Mortgaged Property, the level of
available mortgage rates at the time of sale or refinancing, the borrower's
equity in the related Mortgaged Property, tax laws, prevailing general economic
conditions and the availability of credit for loans secured by residential
property. Because the ability of a borrower to make a Balloon Payment typically
will depend upon the borrower's ability to either refinance the loan or to sell
the related Mortgaged Property, there is a risk that the Balloon Loans may
default at maturity. Any defaulted Balloon Payment that extends the maturity of
a Mortgage Loan may delay distributions of principal on the Offered Certificates
and thereby extend the weighted average life of such Certificates and, if such
Certificates were purchased at a discount, reduce the yield thereon.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of each class
of Offered Certificates will be influenced by the rate at which principal on the
Mortgage Loans is paid, which may be in the form of scheduled payments or
prepayments (including repurchases and prepayments of principal by the borrower
as well as amounts received by virtue of condemnation, insurance or foreclosure
with respect to the Mortgage Loans), and the timing thereof.
Except as otherwise described under "Description of the
Certificates--Principal Distributions on the Offered Certificates" in this
prospectus supplement, distributions of principal will be made to the classes of
the Offered Certificates according to the priorities described in this
prospectus supplement, rather than on a PRO RATA basis among such classes,
unless a Insurer Default (as defined herein) exists. The timing of commencement
of principal distributions to each class of the Offered Certificates and the
weighted average life of each such class will be affected by the rates of
prepayment on the Mortgage Loans experienced both before and after the
commencement of principal distributions on each such class. Moreover, because
the Lockout Certificates do not receive (unless the Certificate Principal
Balances of the Offered Certificates, other than the Lockout Certificates, have
been reduced to zero) any portion of principal payments prior to the
Distribution Date occurring in _______ ____ and thereafter will receive (unless
the Certificate Principal Balances of the Offered Certificates, other than the
Lockout Certificates, have been reduced to zero) a disproportionately small or
large portion of principal payments, the weighted average life of the Lockout
Certificates will be longer or shorter than would otherwise be the case, and the
effect on the market value of
S-25
<PAGE>
the Lockout Certificates of changes in market interest rates or market yields
for similar securities may be greater or lesser than for the other classes of
Offered Certificates entitled to principal distributions.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement (the
"Prepayment Assumption") assumes a prepayment rate for the Mortgage Loans of
___% of the Prepayment Vector. A ___% Prepayment Vector assumes that the
outstanding balance of a pool of mortgage loans prepays at a rate of ____% CPR
in the first month of the life of such pool, such rate increasing by an
additional approximate ____% CPR (precisely __/__, expressed as a percentage)
each month thereafter through the eleventh month of the life of such pool, and
such rate thereafter remaining constant at __% CPR for the remainder of the life
of such pool. A __% Prepayment Vector assumes, for example, that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of such pool, such rate increasing by an additional
approximate ____% CPR (precisely __/__, expressed as a percentage) each month
thereafter through the eleventh month of the life of such pool, and such rate
thereafter remaining constant at _____% CPR for the remainder of the life of
such pool. No representation is made that the Mortgage Loans in the Mortgage
Pool will prepay at the above-described rates or any other rate. CPR refers to
the Constant Prepayment Rate model, which assumes that the outstanding principal
balance of a pool of mortgage loans prepays at a specified constant annual rate
or CPR. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate. To assume __% CPR or any other CPR percentage
is to assume that the stated percentage of the outstanding principal balance of
the pool is prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial Certificate Principal Balance of the Offered Certificates that would be
outstanding after each of the dates shown at various percentages of the
Prepayment Assumption and the corresponding weighted average lives of such
Certificates. The tables are based on the following assumptions (the "Modeling
Assumptions"): (i) the Mortgage Pool consists of ______ Mortgage Loans with the
characteristics set forth below, (ii) distributions on such Certificates are
received, in cash, on the 25th day of each month, commencing in _______ ____,
(iii) the Mortgage Loans prepay at the percentages of the Prepayment Assumption
indicated, (iv) no defaults or delinquencies occur in the payment by mortgagors
of principal and interest on the Mortgage Loans and no shortfalls due to the
application of the Relief Act are incurred, (v) none of the Depositor, the
Originators, the Mortgage Loan Seller, the majority holder of the Class CE
Certificates, the Insurer, the Servicers, the Master Servicer or any other
person purchases from the Trust Fund (as defined herein) any Mortgage Loan
pursuant to any obligation or option under the Agreement, except as indicated in
footnote two in the tables below, (vi) scheduled monthly payments on the
Mortgage Loans are received on the first day of each month commencing in _______
____, and are computed prior to giving effect to any prepayments received in the
prior month, (vii) prepayments representing payment in full of individual
Mortgage Loans are received on the last day of each month commencing in _______
____, and include 30 days' interest thereon, (viii) the scheduled monthly
payment for each Mortgage Loan is calculated based on its principal balance,
Mortgage Rate, original term to stated maturity and remaining term to stated
maturity such that the Mortgage Loan will amortize in amounts sufficient to
repay the remaining principal balance of such Mortgage Loan by its remaining
term to stated maturity, (ix) the Certificates are purchased on _______ __,
____, (x) the Servicing Fee Rate is equal to ____% per annum, the Master
Servicing Fee Rate is equal to ____% per annum on the Mortgage Loans directly
serviced by ________ and is equal to ____% per annum on the Mortgage Loans
serviced by __________, the Administration Fee Rate is equal to ______% per
annum and the amount of the premium payable to the Insurer is as described under
the heading "Pooling and Servicing Agreement--Certain Matters Regarding the
Insurer", (xi) the first _____ Mortgage Loans in the table below are Mortgage
Loans that do not by their terms have Prepayment Charges and the last _____
Mortgage Loans in the table below are Mortgage Loans that by their terms do have
Prepayment Charges, (xii) the _____ Mortgage Loan in the table below is a
Balloon Loan with a Balloon Payment of $_______ and the _____ Mortgage Loan in
the table below is a Balloon Loan with a Balloon Payment of $_______ and (xiii)
the _____, _____, _____, ______, _____ and _____ Mortgage Loans in the table
below are Mortgage Loans that have been originated by __________ and the _____,
_____, _____, _____, _____ and ______ Mortgage Loans in the table below are
Mortgage Loans that have been originated by _________.
S-26
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE ORIGINAL TERM REMAINING TERM
AS OF THE MORTGAGE TO MATURITY TO MATURITY
CUT-OFF DATE RATE (MONTHS) (MONTHS)
------------ ---- -------- --------
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the tables. Any such
discrepancy may have an effect upon the percentages of the initial Certificate
Principal Balance outstanding (and the weighted average lives) of the Offered
Certificates set forth in the tables. In addition, since the actual Mortgage
Loans included in the Mortgage Pool will have characteristics that differ from
those assumed in preparing the tables set forth below, the Offered Certificates
may mature earlier or later than indicated by the tables. Based on the foregoing
assumptions, the tables indicate the weighted average lives of the Offered
Certificates and sets forth the percentages of the initial Certificate Principal
Balance of the Offered Certificates that would be outstanding after each of the
Distribution Dates shown, at various percentages of the Prepayment Assumption.
Neither the prepayment model used in this prospectus supplement nor any other
prepayment model or assumption purports to be an historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans included in the
Mortgage Pool. Variations in the prepayment experience and the balance of the
Mortgage Loans that prepay may increase or decrease the percentages of initial
Certificate Principal Balances (and weighted average lives) shown in the
following table. Such variations may occur even if the average prepayment
experience of all the Mortgage Loans equals any of the specified percentages of
the Prepayment Assumption.
S-27
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES CLASS A-3 CERTIFICATES
---------------------- ---------------------- ----------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ---- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
</TABLE>
CLASS A-4 CERTIFICATES
----------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ----
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
- -----------------
* Represents less than one-half of one percent.
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (b) adding the results and (c) dividing the sum by
the initial Certificate Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the majority holder of
the Class CE Certificates exercises its option to purchase the Mortgage
Loans on the earliest possible Distribution Date on which it is
permitted to exercise such option. See "Pooling and Servicing Agreement
--Termination" in this prospectus supplement.
(TABLE CONTINUED ON NEXT PAGE.)
S-28
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-5 CERTIFICATES CLASS A-6 CERTIFICATES CLASS A-7 CERTIFICATES
---------------------- ---------------------- ----------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ---- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
- -----------------
</TABLE>
* Represents less than one-half of one percent.
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (b) adding the results and (c) dividing the sum by
the initial Certificate Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the majority holder of
the Class CE Certificates exercises its option to purchase the Mortgage
Loans on the earliest possible Distribution Date on which it is
permitted to exercise such option. See "Pooling and Servicing Agreement
--Termination" herein.
(TABLE CONTINUED FROM PRIOR PAGE.)
S-29
<PAGE>
There is no assurance that prepayments of the Mortgage Loans will conform
to any of the levels of the Prepayment Assumption indicated in the tables above,
or to any other level, or that the actual weighted average lives of the Offered
Certificates will conform to any of the weighted average lives set forth in the
tables above. Furthermore, the information contained in the tables with respect
to the weighted average lives of the Offered Certificates is not necessarily
indicative of the weighted average lives that might be calculated or projected
under different or varying prepayment assumptions.
The characteristics of the Mortgage Loans will differ from those assumed in
preparing the tables above. In addition, it is unlikely that any Mortgage Loan
will prepay at any constant percentage until maturity, that all of the Mortgage
Loans will prepay at the same rate. The timing of changes in the rate of
prepayments may significantly affect the actual yield to maturity to investors,
even if the average rate of principal prepayments is consistent with the
expectations of investors.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The New Century Mortgage Securities, Inc., Mortgage Pass-Through
Certificates, Series ____-___ (the "Certificates") will consist of ______
classes of certificates, designated as: (i) the Class A-1 Certificates, the
Class A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates,
the Class A-5 Certificates, the Class A-6 Certificates (collectively, the
"Senior Sequential Certificates"); (ii) the Class A-7 Certificates (the "Lockout
Certificates", and collectively with the Senior Sequential Certificates, the
"Offered Certificates"); (iii) the Class CE Certificates; (iv) the Class P
Certificates and (v) the Class R-I Certificates, the Class R-II Certificates and
the Class R-III Certificates (collectively, the "Residual Certificates"). Only
the Offered Certificates are offered hereby. The Class CE Certificates, the
Class P Certificates and the Residual Certificates, which are not being offered
hereby, will be sold by the Depositor to ______________ on the Closing Date.
Distributions on the Offered Certificates will be made on the 25th day of
each month, or, if such day is not a business day, on the next succeeding
business day, beginning in _______ ____ (each, a "Distribution
Date").
The Certificates represent in the aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund") consisting primarily of the Mortgage
Pool of conventional, one- to four-family, fixed-rate, first lien and second
lien mortgage loans having original terms to maturity of not greater than [30]
years. The Certificates have an aggregate principal balance as of the Cut-off
Date of approximately $___________, subject to a permitted variance as described
under "The Mortgage Pool" in this prospectus supplement.
Each class of Offered Certificates will have the approximate initial
Certificate Principal Balance and Pass- Through Rate as set forth under "Summary
of Prospectus Supplement--Offered Certificates" above. The Pass- Through Rate on
the Class A-6 Certificates for any Distribution Date will be a rate per annum be
equal to the lesser of (i) _____% and (ii) the Net WAC Pass-Through Rate for
such Distribution Date. The Offered Certificates in the aggregate evidence an
initial undivided interest of approximately _____% in the Trust Fund and the
Class CE Certificates evidence an initial undivided interest of approximately
____% in the Trust Fund.
The "Net WAC Pass-Through Rate" for any Distribution Date is a rate per
annum equal to the fraction, expressed as a percentage, the numerator of which
is (i) an amount equal to (A) 1/12 of the aggregate Scheduled Principal Balance
(as defined herein) of the then outstanding Mortgage Loans multiplied by the
weighted average of the Expense Adjusted Mortgage Rates on the then outstanding
Mortgage Loans minus (B)
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<PAGE>
the amount of the premium payable to the Insurer with respect to the Policy for
such Distribution Date, and the denominator of which is (ii) 1/12 of the
aggregate Scheduled Principal Balance of the then outstanding
Mortgage Loans.
The "Expense Adjusted Mortgage Rate" on any Mortgage Loan is equal to the
then applicable Mortgage Rate thereon minus the sum of (i) the Administration
Fee Rate, (ii) the Servicing Fee Rate and (iii) the Master Servicing Fee Rate.
For any Distribution Date, the Administration Fee Rate is equal to _____% per
annum, the Servicing Fee Rate is equal to ____% per annum and the Master
Servicing Fee Rate is equal to ____% per annum with respect to each Mortgage
Loan serviced by _________. See "Pooling and Servicing Agreement--The Trustee",
"--The Trust Administrator" and "--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement. The amount of the premium payable to
the Insurer with respect to the Policy for any Distribution Date is described
under "Pooling and Servicing Agreement--Certain Matters Regarding the Insurer"
in this prospectus supplement.
The Offered Certificates will be issued, maintained and transferred on the
book-entry records of the Depository Trust Company ("DTC") and its Participants
(as defined herein) in minimum denominations of $[10,000] and integral multiples
of $[1.00] in excess thereof.
The Offered Certificates will initially be represented by one or more
global certificates registered in the name of the nominee of DTC (together with
any successor clearing agency selected by the Depositor, the "Clearing Agency"),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No person acquiring an interest in any
Offered Certificate (a "Certificate Owner") will be entitled to receive a
certificate representing such person's interest, except as set forth below under
"--Definitive Certificates". Unless and until a certificate is issued in fully
registered certificated form (a "Definitive Certificate") under the limited
circumstances described in this prospectus supplement, all references to actions
by Certificateholders with respect to the Offered Certificates shall refer to
actions taken by DTC upon instructions from its Participants, and all references
in this prospectus supplement to distributions, notices, reports and statements
to Certificateholders with respect to the Offered Certificates shall refer to
distributions, notices, reports and statements to DTC or CEDE, as the registered
holder of the Offered Certificates, for distribution to Certificate Owners in
accordance with DTC procedures. See "--Registration of the Offered Certificates"
and "--Definitive Certificates" in this prospectus supplement.
Any Definitive Certificates will be transferable and exchangeable at the
offices of the Trust Administrator. No service charge will be imposed for any
registration of transfer or exchange, but the Trust Administrator may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
All distributions to holders of the Certificates, other than the final
distribution on any class of Certificates, will be made by the Trust
Administrator on behalf of the Trustee to the persons in whose names such
Certificates are registered at the close of business on each Record Date. The
"Record Date" for each Distribution Date (i) with respect to any book-entry
Certificate will be the close of business on the business day immediately
preceding such Distribution Date or (ii) with respect to any other class of
Certificates, including any Definitive Certificates, will be the close of
business on the last business day of the month preceding the month in which such
Distribution Date occurs. Such distributions will be made either (a) by check
mailed to the address of each such Certificateholder as it appears in the
Certificate Register or (b) upon written request to the Trust Administrator at
least five business days prior to the relevant Record Date by any holder of
Certificates having an aggregate initial Certificate Principal Balance that is
in excess of the lesser of (i) $5,000,000 or (ii) two-thirds of the initial
aggregate Certificate Principal Balance of such class of Certificates, by wire
transfer in immediately available funds to the account of such Certificateholder
specified in the request. The final distribution on any class of Certificates
will be made in like manner, but only upon
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presentment and surrender of such Certificates at the corporate trust office of
the Trust Administrator or such other location specified in the notice to
Certificateholders of such final distribution.
REGISTRATION OF THE OFFERED CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including
_____________), banks, trust companies and clearing corporations. Indirect
access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Offered Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal of and interest on the Offered Certificates from the Trust
Administrator through DTC and DTC Participants. The Trust Administrator will
forward payments to DTC in same day funds and DTC will forward such payments to
Participants in next day funds settled through the New York Clearing House. Each
Participant will be responsible for disbursing such payments to Indirect
Participants or to Certificate Owners. Unless and until Definitive Certificates
are issued, it is anticipated that the only Certificateholder of the Offered
Certificates will be CEDE, as nominee of DTC. Certificate Owners will not be
recognized by the Trust Administrator as Certificateholders, as such term is
used in the Agreement, and Certificate Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Offered Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess Definitive Certificates, the Rules provide a mechanism by which
Certificate Owners through their Participants and Indirect Participants will
receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and on behalf of certain banks, the ability of a
Certificate Owner to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the absence of physical certificates for the
Offered Certificates. In addition, under a book-entry format, Certificate Owners
may experience delays in their receipt of payments since distribution will be
made by the Trust Administrator to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a
Certificateholder under the Agreement only at the direction of one or more
Participants to whose DTC account the Offered Certificates are credited.
Additionally, under the Rules, DTC will take such actions with respect to
specified Voting Rights only at the direction of and on behalf of Participants
whose holdings of Offered Certificates evidence such specified Voting Rights.
DTC may take conflicting actions with respect to Voting Rights to the extent
that Participants whose holdings of Offered Certificates evidence such Voting
Rights, authorize divergent action.
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DTC management is aware that some computer applications, systems and
similar items for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed its Participants and other members of the
financial community (collectively, the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Depositor, the Servicers, the Trustee, the Trust Administrator, the
Originators, the Insurer and the Mortgage Loan Seller will have no liability for
any actions taken by DTC or its nominee, including, without limitation, actions
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Offered Certificates held by CEDE, as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Depositor advises
the Trust Administrator in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Clearing Agency with respect to the
Offered Certificates and the Depositor is unable to locate a qualified
successor, (ii) the Depositor, at its option, advises the Trust Administrator in
writing that it elects to terminate the book-entry system through DTC, or (iii)
after the occurrence of an Event of Default, Certificate Owners representing in
the aggregate not less than 51% of the Voting Rights of the Offered Certificates
advise the Trust Administrator and DTC through Participants, in writing, that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the Certificate Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trust Administrator is required to notify all Certificate Owners
through Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the Definitive Certificates representing the Offered
Certificates and receipt of instructions for re-registration, the Trust
Administrator will reissue the Offered Certificates as Definitive Certificates
issued in the respective principal amounts owned by individual Certificate
Owners, and thereafter the Trust Administrator will recognize the holders of
such Definitive Certificates as Certificateholders under the Agreement. Such
Definitive Certificates will be issued in minimum denominations of $10,000,
except that any beneficial ownership represented by a Offered Certificate in an
amount less than $10,000 immediately prior to the issuance of a Definitive
Certificate shall be issued in a minimum denomination equal to the amount
represented by such Offered Certificate.
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DISTRIBUTIONS--GENERAL
The "Due Period" with respect to any Distribution Date commences on the
second day of the month immediately preceding the month in which such
Distribution Date occurs and ends on the first day of the month in which such
Distribution Date occurs. The "Prepayment Period" with respect to any
Distribution Date is the calendar month immediately preceding the month in which
such Distribution Date occurs. The "Determination Date" with respect to any
Distribution Date is on the 15th day of the month in which such Distribution
Date occurs or, if such day is not a business day, on the immediately preceding
business day.
INTEREST DISTRIBUTIONS ON THE OFFERED CERTIFICATES
Distributions in respect of interest will be made on each Distribution Date
to the holders of each class of Offered Certificates in an amount (allocable
among such Certificates PRO RATA in accordance with the respective amounts
payable as to each in respect of interest) equal to the Interest Distribution
Amount for such class for such Distribution Date.
The "Interest Distribution Amount" for the Offered Certificates of any
class on any Distribution Date is equal to interest accrued during the related
Interest Accrual Period on the Certificate Principal Balance of such
Certificates immediately prior to such Distribution Date at the Pass-Through
Rate for such class, reduced (to not less than zero), in the case of each such
class, by the allocable share for such class of shortfalls resulting from the
application of the Relief Act, plus any undistributed Interest Distribution
Amount for such class from any previous Distribution Dates. On any Distribution
Date, any shortfalls resulting from the application of the Relief Act will be
allocated, first, to the interest distribution amount with respect to the Class
CE Certificates, and thereafter, to the Interest Distribution Amounts with
respect to the Offered Certificates on a PRO RATA basis based on the respective
amounts of interest accrued on such Certificates for such Distribution Date. On
any Distribution Date, any Prepayment Interest Shortfalls to the extent not
covered by Compensating Interest (as defined herein) paid by the Servicers will
be allocated to the interest distribution amount with respect to the Class CE
Certificates. The holders of the Offered Certificates will be entitled to
reimbursement for any shortfalls resulting from application of the Relief Act,
subject to available funds, in the priority described under
"--Overcollateralization Provisions" in this prospectus supplement. The
Pass-Through Rate applicable to the calculation on the Interest Distribution
Amount for each class of Offered Certificates is fixed and set forth under
"Summary of Prospectus Supplement--Offered Certificates" above; subject to the
Net WAC Pass- Through Rate in the case of the Class A-6 Certificates.
The "Interest Accrual Period" for any Distribution Date and the Offered
Certificates of any class is the one-month period preceding the month in which
such Distribution Date occurs, and all distributions of interest on the Offered
Certificates will be based on a 360-day year consisting of twelve 30-day months.
Except as otherwise described in this prospectus supplement, on any Distribution
Date, distributions of the Interest Distribution Amount for a class of
Certificates will be made in respect of such class of Certificates, to the
extent provided in this prospectus supplement, on a PARI PASSU basis, based on
the Certificate Principal Balance of the Certificates of each such class.
Subject to the terms of the Policy, any interest losses incurred by the
Offered Certificates (other than shortfalls resulting from the application of
the Relief Act) will be covered under the Policy. Notwithstanding the foregoing,
however, if payments are not made as required under the Policy, any such
interest losses may be borne by the Offered Certificates to the extent the
amount of such losses is not paid from Net Monthly Excess Cashflow (as defined
herein), in the priority described under "--Overcollateralization Provisions" in
this prospectus supplement.
The Certificate Principal Balance of an Offered Certificate outstanding at
any time represents the then maximum amount that the holder thereof is entitled
to receive as distributions allocable to principal from the
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cash flow on the Mortgage Loans and the other assets in the Trust Fund. The
Certificate Principal Balance of any class of Offered Certificates as of any
date of determination is equal to the initial Certificate Principal Balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses in the manner described in this
prospectus supplement. The Certificate Principal Balance of the Class CE
Certificates as of any date of determination is equal to the excess, if any, of
(a) the then aggregate principal balance of the Mortgage Loans over (b) the then
aggregate Certificate Principal Balance of the Offered Certificates and the
Class P Certificates.
PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES
On each Distribution Date, the Principal Distribution Amount will be
distributed to the holders of the Offered Certificates then entitled to such
distributions. The "Principal Distribution Amount" for any Distribution Date
will be the lesser of:
(a) the excess of the Available Distribution Amount over the aggregate
of the Interest Distribution Amounts for the Offered Certificates; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments on
the Mortgage Loans due during the related Due Period, whether or
not received on or prior to the related Determination Date;
(ii) the principal portion of all proceeds received in respect
of the repurchase of a Mortgage Loan (or, in the case of a
substitution, certain amounts representing a principal adjustment)
as required by the Agreement during the related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received during
the related Prepayment Period, to the extent applied as recoveries
of principal on the Mortgage Loans;
(iv) the principal portion of any Realized Losses incurred or
deemed to have been incurred on any Mortgage Loans in the calendar
month preceding such Distribution Date to the extent covered by
Net Monthly Excess Cashflow for such Distribution Date; and
(v) the amount of any Overcollateralization Increase Amount
(as defined herein) for such Distribution Date;
MINUS
(vi) the amount of any Overcollateralization Reduction Amount
(as defined herein) for such Distribution Date.
Notwithstanding the foregoing, as described under "--Overcollateralization
Provisions" in this prospectus supplement, no amounts will be distributed to the
holders of the Offered Certificates pursuant to clause (v) above except to the
extent of any Net Monthly Excess Cashflow remaining after payment to the holders
of the Offered Certificates of all amounts in respect of Realized Losses
pursuant to clause (iv) above and payment to the Insurer of any Cumulative
Insurance Payments. As of any Distribution Date, "Cumulative Insurance
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Payments" refers to the aggregate of any payments made by the Insurer under the
Policy to the extent not previously reimbursed, plus interest thereon.
In no event will the Principal Distribution Amount with respect to any
Distribution Date be (x) less than zero or (y) greater than the then outstanding
aggregate Certificate Principal Balance of the Offered Certificates.
The "Available Distribution Amount" for any Distribution Date is equal to
the sum, net of amounts reimbursable therefrom to the Master Servicer, the
Servicers, the Trust Administrator or the Trustee, of (i) the aggregate amount
of scheduled monthly payments on the Mortgage Loans due on the related Due Date
and received on or prior to the related Determination Date, after deduction of
the Servicing Fees, the Master Servicing Fee, the Administration Fee and the
premium payable with respect to the Policy, (ii) certain unscheduled payments in
respect of the Mortgage Loans, including prepayments, insurance proceeds,
liquidation proceeds and proceeds from repurchases of and substitutions for the
Mortgage Loans occurring during the preceding calendar month and (iii) all P&I
Advances with respect to the Mortgage Loans received for such Distribution Date.
The holders of the Class P Certificates will be entitled to all Prepayment
Charges received on the Mortgage Loans and such amounts will not be available
for distribution on the Offered Certificates.
The "Scheduled Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date
(after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received), reduced by (x) the principal portion of
all monthly payments due on or before the date of determination, whether or not
received, (y) all amounts allocable to unscheduled principal that were received
prior to the calendar month in which the date of determination occurs and (z)
any Bankruptcy Loss (as defined herein) occurring out of a Deficient Valuation
(as defined herein) that was incurred prior to the calendar month in which the
date of determination occurs.
In addition, on each Distribution Date, funds received as a result of a
claim under the Policy in respect of the principal portion of Realized Losses
allocated to the Offered Certificates will be distributed by the Trust
Administrator on behalf of the Trustee to the holders of such Certificates. See
"--Financial Guaranty Insurance Policy" in this prospectus supplement.
Distributions of the Principal Distribution Amount (and any amounts
distributable in accordance with clauses FIRST and THIRD under
"--Overcollateralization Provisions" in this prospectus supplement) on the
Offered
Certificates on each Distribution Date will be made as follows:
(i) First, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Principal Distribution Amount, until the
Certificate Principal Balance thereof has been reduced to zero;
(ii) Second, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance thereof
has been reduced to zero;
(iii) Third, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(iv) Fourth, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance thereof
has been reduced to zero;
(v) Fifth, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
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(vi) Sixth, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(vii) Seventh, to the holders of the Class A-6 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and
(viii) Eighth, to the holders of the Lockout Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, if an Insurer Default exists, the
priority of distributions of principal among the Offered Certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding Distribution Date to holders of the Offered Certificates, on a PRO
RATA basis, based on the Certificate Principal Balances thereof.
The "Lockout Certificate Percentage" for the Lockout Certificates will be
calculated for each Distribution Date to be the percentage equal to the
aggregate Certificate Principal Balance of the Lockout Certificates immediately
prior to such Distribution Date divided by the sum of the aggregate Certificate
Principal Balances of the Offered Certificates immediately prior to such
Distribution Date. The "Lockout Distribution Percentage" for the Lockout
Certificates and for any Distribution Date occurring prior to the Distribution
Date in ________ ____ will be equal to 0%. The "Lockout Distribution Percentage"
for any Distribution Date occurring after the first three years following the
Closing Date will be as follows: for any Distribution Date during the _____ or
_____ year after the Closing Date, __% of the Lockout Certificate Percentage for
such Distribution Date; for any Distribution Date during the _____ year after
the Closing Date, __% of the Lockout Certificate Percentage for such
Distribution Date; for any Distribution Date during the _______ year after the
Closing Date, ___% of the Lockout Certificate Percentage for such Distribution
Date, and for any Distribution Date thereafter, the lesser of (x) ___% of the
Lockout Certificate Percentage and (y) ___%. Notwithstanding the foregoing, if
the Certificate Principal Balances of the Offered Certificates (other than the
Lockout Certificates) have been reduced to zero, the Lockout Distribution
Percentage will be equal to ___%.
OVERCOLLATERALIZATION PROVISIONS
The weighted average Mortgage Rate (net of the Administration Fee Rate, the
Servicing Fee Rate, the Master Servicing Fee Rate and the amount of the premium
payable to the Insurer) for the Mortgage Loans is generally expected to be
higher than the weighted average of the Pass-Through Rate on the Offered
Certificates, thus generating excess interest collections which, in the absence
of Realized Losses, will not be necessary to fund interest distributions on the
Offered Certificates. The Agreement requires that, on each Distribution Date,
the Net Monthly Excess Cashflow, if any, be applied on such Distribution Date as
an accelerated payment of principal on the Offered Certificates, but only to the
limited extent hereafter described. The "Net Monthly Excess Cashflow" for any
Distribution Date is equal to the sum of (a) any Overcollateralization Reduction
Amount and (b) the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the sum for such Distribution Date of the aggregate
of the Interest Distribution Amounts payable to the holders of the Offered
Certificates and the sum of the amounts described in clauses (b)(i) through
(iii) of the definition of Principal Distribution Amount.
With respect to any Distribution Date, any Net Monthly Excess Cashflow (or,
in the case of clause FIRST below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of Offered Certificates then
entitled to receive distributions in respect of principal, in an amount
equal to the principal portion of any Realized Losses incurred or
deemed to have been incurred on the Mortgage Loans;
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SECOND, to the Insurer, in an amount equal to any Cumulative Insurance
Payments;
THIRD, to the holders of the class or classes of Offered Certificates then
entitled to receive distributions in respect of principal, in an amount
equal to the Overcollateralization Increase Amount;
FOURTH, to the holders of the Offered Certificates, in an amount equal to
such Certificates' allocated share of any shortfalls resulting from the
application of the Relief Act with respect to the Mortgage Loans;
FIFTH, to the Insurer, for any amounts remaining due to the Insurer under
the terms of the Insurance Agreement (as defined herein);
SIXTH, to the holders of the Class CE Certificates as provided in the
Agreement; and
SEVENTH, to the holders of the Residual Certificates, any remaining
amounts; provided that if such Distribution Date is the Distribution Date
immediately following the expiration of the latest Prepayment Charge term
or any Distribution Date thereafter, then any such remaining amounts will
be distributed first, to the holders of the Class P Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and SECOND,
to the holders of the Residual Certificates.
With respect to any Distribution Date, the excess, if any, of (a) the
aggregate principal balance of the Mortgage Loans immediately following such
Distribution Date, over (b) the sum of the aggregate Certificate Principal
Balances of the Offered Certificates and the Class P Certificates as of such
date, after taking into account the payment of the amounts described in clauses
(b)(i) through (iv) of the definition of Principal Distribution Amount on such
Distribution Date, is the "Overcollateralized Amount" for the Offered
Certificates as of such Distribution Date. As of the Closing Date, the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date will exceed the
sum of the aggregate Certificate Principal Balances of the Offered Certificates
and the Class P Certificates by an amount equal to approximately $__________,
which is equal to the initial Certificate Principal Balance of the Class CE
Certificates. Such amount represents approximately ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date and is the
initial amount of overcollateralization required to be provided by the Mortgage
Pool under the Agreement. Under the Agreement, the Overcollateralized Amount is
required to be maintained at the "Required Overcollateralized Amount". In the
event that Realized Losses are incurred on the Mortgage Loans, such Realized
Losses may result in an overcollateralization deficiency since such Realized
Losses will reduce the principal balance of the Mortgage Loans without a
corresponding reduction to the aggregate Certificate Principal Balances of the
Offered Certificates. In such event, the Agreement requires the payment from Net
Monthly Excess Cashflow, subject to available funds, of an amount equal to such
overcollateralization deficiency, which shall constitute a principal
distribution on the Offered Certificates in reduction of the Certificate
Principal Balances thereof. This has the effect of accelerating the amortization
of the Offered Certificates relative to the amortization of the Mortgage Loans,
and of increasing the Overcollateralized Amount. With respect to the Offered
Certificates and any Distribution Date, any amount of Net Monthly Excess
Cashflow actually applied as an accelerated payment of principal to the extent
the Required Overcollateralized Amount exceeds the Overcollateralized Amount as
of such Distribution Date is an "Overcollateralization Increase Amount".
With respect to any Distribution Date, the Required Overcollateralized
Amount for the Offered Certificates will be an amount equal to approximately
____% of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date, subject to increase ("step up") or, after __ months, decrease ("step
down"), upon the occurrence of certain loss and delinquency triggers with
respect to the Mortgage Pool set forth in the Agreement.
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In the event that the Required Overcollateralized Amount is required to
step up on any Distribution Date, the Agreement provides that all Net Monthly
Excess Cashflow remaining after the distributions described in clauses FIRST and
SECOND above will be distributed in respect of the Overcollateralization
Increase Amount for the Offered Certificates until the Overcollateralized Amount
is equal to the stepped up Required Overcollateralized Amount. This has the
effect of accelerating the amortization of the Offered Certificates relative to
the amortization of the Mortgage Loans, and of increasing the Overcollateralized
Amount.
In the event that the Required Overcollateralized Amount is permitted to
step down on any Distribution Date, the Agreement provides that a portion of the
principal which would otherwise be distributed to the holders of the Offered
Certificates on such Distribution Date shall be distributed to the holders of
the Class CE Certificates on such Distribution Date. With respect to each such
Distribution Date, the Principal Distribution Amount will be reduced by the
amount by which the Overcollateralized Amount exceeds the Required
Overcollateralized Amount (the "Overcollateralization Reduction Amount") after
taking into account all other distributions to be made on such Distribution
Date. Any such Overcollateralization Reduction Amount shall be distributed as
part of Net Monthly Excess Cashflow pursuant to the priorities set forth above.
This has the effect of decelerating the amortization of the Offered Certificates
relative to the amortization of the Mortgage Loans and of reducing the
Overcollateralized Amount.
FINANCIAL GUARANTY INSURANCE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy. A form of
the Policy may be obtained, upon request, from the Depositor.
Simultaneously with the issuance of the Offered Certificates, the Insurer
will deliver the Policy to the Trust Administrator for the benefit of the
holders of the Offered Certificates. Under the Policy, the Insurer will
irrevocably and unconditionally guarantee payment to the Trust Administrator on
behalf of the Trustee on each Distribution Date for the benefit of the holders
of the Offered Certificates, the full and complete payment of Insured Payments
with respect to the Offered Certificates calculated in accordance with the
original terms of the Offered Certificates when issued and without regard to any
amendment or modification of the Offered Certificates or the Agreement except
amendments or modifications to which the Insurer has given its prior written
consent. "Insured Payments" shall mean with respect to the Offered Certificates
as of any Distribution Date, the sum of (i) any shortfall in amounts available
in the Distribution Account (as defined in the Agreement) to pay the Interest
Distribution Amount on such Certificates for the related Interest Accrual
Period, (ii) the excess, if any, of (a) the aggregate Certificate Principal
Balance of the Offered Certificates then outstanding over (b) the aggregate
principal balances of the Mortgage Loans then outstanding and (iii) without
duplication of the amount specified in clause (ii), the aggregate Certificate
Principal Balance of the Offered Certificates to the extent unpaid on the final
Distribution Date or the earlier termination of the Trust Fund pursuant to the
terms of the Agreement. The Policy does not cover Relief Act Shortfalls.
If any Insured Payment is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Insurer will pay such
amount out of funds of the Insurer on the later of (a) the date when due to be
paid pursuant to the Order referred to below or (b) the first to occur of (i)
the fourth Business Day following Receipt by the Insurer from the Trust
Administrator of (A) a certified copy of the order of the court or other
governmental body which exercised jurisdiction to the effect that a holder of
Offered Certificates is required to return principal or interest distributed
with respect to an Offered Certificate during the Term of the Policy because
such distributions were avoidable preferences under applicable bankruptcy law
(the "Order"), (B) a certificate of such holder of Offered Certificates that the
Order has been entered and is not subject to any stay, and (C) an assignment
duly executed and delivered by such holder of Offered Certificates, in such form
as is reasonably required by the Insurer and provided to such holder of Offered
Certificates by the Insurer, irrevocably assigning to the Insurer all rights and
claims of such holder of
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<PAGE>
Offered Certificates relating to or arising under the Offered Certificates
against the debtor which made such preference payment or otherwise with respect
to such preference payment, or (ii) the date of Receipt by the Insurer from the
Trust Administrator of the items referred to in clauses (A), (B) and (C) above
if, at least four Business Days prior to such date of Receipt, the Insurer shall
have Received written notice from the Trust Administrator that such items were
to be delivered on such date and such date was specified in such notice. Such
payment shall be disbursed to the receiver, conservator, debtor-in-possession or
trustee in bankruptcy named in the Order and not to the Trust Administrator or
holder of Offered Certificates directly, unless a holder of Offered Certificates
has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Trust Administrator for distribution to
such holder of the Offered Certificates upon proof of such payment reasonably
satisfactory to the Insurer. In connection with the foregoing, the Insurer shall
have the rights provided pursuant to the Agreement.
Payment of claims under the Policy made in respect of Insured Payments will
be made by the Insurer following Receipt by the Insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the second Business Day following Receipt of such notice for payment, and (b)
12:00 noon, New York City time, on the relevant Distribution Date.
The terms "Receipt" and "Received", with respect to the Policy, means
actual delivery to the Insurer and to its fiscal agent appointed by the Insurer
at its option, if any, prior to 12:00 p.m., New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 p.m.,
New York City time, shall be deemed to be Receipt on the next succeeding
Business Day. If any notice or certificate given under the Policy by the Trust
Administrator is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Insurer or the
fiscal agent shall promptly so advise the Trust Administrator and the Trust
Administrator may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in the City of New York, New
York, the State of New York or in the city in which the corporate trust office
of the Trust Administrator is located, are authorized or obligated by law or
executive order to be closed. The Insurer's obligations under the Policy to make
Insured Payments shall be discharged to the extent funds are transferred to the
Trust Administrator as provided in the Policy, whether or not such funds are
properly applied by the Trust Administrator.
"Term of the Policy" means the period from and including the date of
issuance of the Policy to and including the date on which the Certificate
Principal Balances of the Offered Certificates are reduced to zero, plus such
additional period, to the extent specified in the Policy, during which any
payment on the Offered Certificates could be avoided in whole or in part as a
preference payment.
The Insurer shall be subrogated to the rights of the holders of the Offered
Certificates to receive payments of principal and interest, as applicable, with
respect to distributions on such Certificates to the extent of any payment by
the Insurer under the Policy. To the extent the Insurer makes Insured Payments,
either directly or indirectly (as by paying through the Trust Administrator), to
the holders of the Offered Certificates, the Insurer will be subrogated to the
rights of the holders of the Offered Certificates, as applicable, with respect
to such Insured Payment and shall be deemed to the extent of the payments so
made to be a registered holder of the Offered Certificates for purposes of
payment.
Claims under the Policy constitute direct unsecured and unsubordinated
obligations of the Insurer, and will rank not less than PARI PASSU with any
other unsecured and unsubordinated indebtedness of the Insurer except for
certain obligations in respect to tax and other payments to which preference is
or may become afforded by statute. The terms of the Policy cannot be modified,
altered or affected by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Depositor. The Policy by its terms may not
be
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<PAGE>
canceled or revoked prior to distribution in full of all Guaranteed
Distributions (as defined therein). The Policy is governed by the laws of the
State of New York. The Policy is not covered by the property/casualty insurance
security fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Insurer agrees under
the Policy not to assert, and waives, for the benefit of each holder of the
Offered Certificates, all its rights (whether by counterclaim, setoff or
otherwise) and defenses (including, without limitation, the defense of fraud),
whether acquired by subrogation, assignment or otherwise, to the extent that
such rights and defenses may be available to the Insurer to avoid payment of its
obligations under the Policy in accordance with the express provisions of the
Policy.
Pursuant to the terms of the Agreement, unless an Insurer Default exists,
the Insurer will be entitled to exercise certain rights of the holders of the
Offered Certificates, without the consent of such Certificateholders, and the
holders of the Offered Certificates may exercise such rights only with the prior
written consent of the Insurer. See "Pooling and Servicing Agreement--Voting
Rights" and "--Certain Matters Regarding the Insurer" in this prospectus
supplement.
The Depositor, the Mortgage Loan Seller, the Servicers and the Insurer will
enter into an Insurance and Indemnity Agreement (the "Insurance Agreement")
pursuant to which the Depositor, the Mortgage Loan Seller and the Servicers will
agree to reimburse, with interest, the Insurer for amounts paid pursuant to
claims under the Policy. The Depositor, the Mortgage Loan Seller and the
Servicers will further agree to pay the Insurer all reasonable charges and
expenses which the Insurer may pay or incur relative to any amounts paid under
the Policy or otherwise in connection with the transaction and to indemnify the
Insurer against certain liabilities. Except to the extent provided tin this
prospectus supplement, amounts owing under the Insurance Agreement will be
payable solely from the Trust Fund. An event of default by either Servicer under
the Insurance Agreement will constitute an Event of Default by such Servicer
under the Agreement and allow the Insurer, among other things, to direct the
Trustee to terminate such Servicer. An "event of default" by each Servicer under
the Insurance Agreement includes (i) such Servicer's failure to pay when due any
amount owed under the Insurance Agreement or certain other documents, (ii) such
Servicer's untruth or incorrectness in any material respect of any
representation or warranty of such Servicer in the Insurance Agreement, the
Agreement (in its capacity as Servicer) or certain other documents, (iii) such
Servicer's failure to perform or to observe any covenant or agreement in the
Insurance Agreement, the Agreement (in its capacity as Servicer) and certain
other documents, (iv) such Servicer's failure to pay its debts in general or the
occurrence of certain events of insolvency or bankruptcy with respect to such
Servicer and (v) the occurrence of an Event of Default relating to such Servicer
under the Agreement or certain other documents.
ALLOCATION OF LOSSES; SUBORDINATION
With respect to any defaulted Mortgage Loan that is finally liquidated
through foreclosure sale, disposition of the related Mortgaged Property (if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure) or
otherwise, the amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the
Servicers for P&I Advances, servicing advances and other related expenses,
including attorney's fees) towards interest and principal owing on the Mortgage
Loan. Such amount of loss realized and any Bankruptcy Losses are referred to in
this prospectus supplement as "Realized Losses". In the event that amounts
recovered in connection with the final liquidation of a defaulted Mortgage Loan
are insufficient to reimburse the Servicers for P&I Advances and servicing
advances, such amounts may be reimbursed to the Servicers out of any funds in
the Certificate Account prior to the distribution on the Certificates.
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<PAGE>
Any Realized Losses on the Mortgage Loans will be allocated on any
Distribution Date, FIRST, to Net Monthly Excess Cashflow, SECOND, to the Class
CE Certificates until the Certificate Principal Balance thereof has been reduced
to zero, and THIRD, to the Offered Certificates on a PRO RATA basis. The
Agreement does not permit the allocation of any Realized Losses to the Class P
Certificates. The Policy will cover any Realized Losses allocable to the Offered
Certificates pursuant to clause THIRD above. Notwithstanding the foregoing,
however, if payments are not made as required under the Policy, Realized Losses
will be allocated to the Offered Certificates.
If Realized Losses have been allocated to the Offered Certificates and the
Insurer has defaulted in its obligation to cover such Realized Losses, such
amounts with respect to such Certificates will no longer accrue interest nor
will such amounts be reinstated thereafter (even if Net Monthly Excess Cashflow
and/or the Overcollateralized Amount are greater than zero on any subsequent
Distribution Dates).
Any allocation of a Realized Loss to a Certificate will be made by reducing
the Certificate Principal Balance thereof by the amount so allocated as of the
Distribution Date in the month following the calendar month in which such
Realized Loss was incurred. An allocation of a Realized Loss on a PRO RATA basis
between two or more classes of Certificates means an allocation to each such
class of Certificates on the basis of its then outstanding Certificate Principal
Balance prior to giving effect to distributions to be made on such Distribution
Date. Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Certificate Principal Balance of an Offered
Certificate be reduced more than once in respect of any particular amount both
(i) allocable to such Offered Certificate in respect of Realized Losses and (ii)
payable as principal to the holder of such Offered Certificate from Net Monthly
Excess Cashflow or from amounts paid under the Policy.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service Reduction.
With respect to any Mortgage Loan, a "Deficient Valuation" is a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy Code. A
"Debt Service Reduction" is any reduction in the amount which a mortgagor is
obligated to pay on a monthly basis with respect to a Mortgage Loan as a result
of any proceeding initiated under the United States Bankruptcy Code, other than
a reduction attributable to a Deficient Valuation.
P&I ADVANCES
Subject to the following limitations, each Servicer will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of all payments of principal and interest, net of the Servicing
Fee, that were due during the related Due Period on the Mortgage Loans serviced
by it and that were delinquent on the related Determination Date, plus certain
amounts representing assumed payments not covered by any current net income on
the Mortgaged Properties acquired by foreclosure or deed in lieu of foreclosure
(any such advance, a "P&I Advance"). With respect to a delinquent Balloon
Payment, the related Servicer is not required to make a P&I Advance of such
delinquent Balloon Payment. The related Servicer will, however, make monthly P&I
Advances with respect to a Balloon Loan with delinquent Balloon Payments, in
each case in an amount equal to the assumed monthly principal and interest
payment (net of the related Servicing Fee) that would have been due during the
related Due Period based on the original principal amortization schedule for
such Balloon Loan.
P&I Advances are required to be made only to the extent they are deemed by
the applicable Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making such P&I
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or
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<PAGE>
insure against losses. Neither Servicer will be required to make any P&I
Advances with respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to bankruptcy proceedings or the application of the Relief
Act.
All P&I Advances will be reimbursable to the applicable Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
serviced by it as to which such unreimbursed P&I Advance was made. In addition,
any P&I Advances previously made in respect of any Mortgage Loan that are deemed
by applicable Servicer to be nonrecoverable from related late collections,
insurance proceeds or liquidation proceeds may be reimbursed to such Servicer
out of any funds in the Certificate Account prior to the distributions on the
Certificates. In the event that either Servicer fails in its obligation to make
any required advance, the Trust Administrator will be obligated to make any such
advance and in the event that the Trust Administrator fails in its obligation to
make any such advance, the Trustee will be obligated to make any such advance,
in each case to the extent required in the Agreement. Notwithstanding the
foregoing, in the event _______ fails in its obligation to make any required
advance as Servicer, the Master Servicer will be obligated to make any such
advance prior to the obligation of the Trust Administrator or the Trustee to
make such advances as provided above.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of _______ __, ____ (the "Agreement"), among the Depositor,
the Servicers, the Trust Administrator and the Trustee, a form of which is filed
as an exhibit to the Registration Statement. A Current Report on Form 8-K
relating to the Certificates containing a copy of the Agreement as executed will
be filed by the Depositor with the Securities and Exchange Commission within
fifteen days of the initial issuance of the Certificates. The Trust Fund created
under the Agreement will consist of (i) all of the Depositor's right, title and
interest in the Mortgage Loans, the related Mortgage Notes, Mortgages and other
related documents, (ii) all payments on or collections in respect of the
Mortgage Loans due after the Cut-off Date, together with any proceeds thereof,
(iii) any Mortgaged Properties acquired on behalf of Certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues received
thereon, (iv) the rights of the Trustee under all insurance policies required to
be maintained pursuant to the Agreement and (v) certain of the rights of the
Depositor under the Mortgage Loan Purchase Agreement among the Depositor, the
Mortgage Loan Seller and ___________ and under the Mortgage Loan Purchase
Agreement among the Depositor, the Mortgage Loan Seller and ___________.
Reference is made to the prospectus for important information in addition to
that set forth in this prospectus supplement regarding the Trust Fund, the terms
and conditions of the Agreement and the Offered Certificates. The Offered
Certificates will be transferable and exchangeable at the corporate trust
offices of the Trust Administrator, located in ______, __________. The Depositor
will provide to a prospective or actual Certificateholder without charge, on
written request, a copy (without exhibits) of the Agreement. Requests should be
addressed to the Secretary, New Century Mortgage Securities, Inc., 18400 Von
Karman, Irvine, California 92612.
ASSIGNMENT OF THE MORTGAGE LOANS
The Depositor will deliver to the Trust Administrator, as custodian for the
Trustee, with respect to each Mortgage Loan (i) the mortgage note endorsed
without recourse to the Trustee to reflect the transfer of the Mortgage Loan,
(ii) the original mortgage with evidence of recording indicated thereon and
(iii) an assignment of the mortgage in recordable form to the Trustee,
reflecting the transfer of the Mortgage Loan. Such
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<PAGE>
assignments of Mortgage Loans are required to be recorded by or on behalf of the
Depositor in the appropriate offices for real property records.
[ORIGINATOR 1]
The information set forth in the following paragraphs has been provided by
_________. None of the Depositor, the Trustee, the Trust Administrator, the
other Servicer or the Insurer or any of their respective affiliates has made or
will make any representation as to the accuracy or completeness of such
information.
DELINQUENCY AND FORECLOSURE EXPERIENCE
OF _________'S SERVICING PORTFOLIO AS OF SEPTEMBER 30, 1998
Percentage
Dollar of Total
Amount Servicing Portfolio
------ -------------------
Delinquency(1)
30-59 Days $ %
60-89 Days $ %
90 Days or more $ %
Loans in Foreclosure(2) $ %
REO Properties(2) $ %
Total Servicing Portfolio $
- -------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
(2) The percentage of loans in foreclosure and REO properties is based on the
dollar amount of loans in foreclosure and REO properties as a percentage of
the total dollar amount of the mortgage loans in the servicing portfolio as
of the date indicated.
[ORIGINATOR 2]
The information set forth in the following paragraphs has been provided by
the _________. None of the Depositor, the Trustee, the Mortgage Loan Seller, the
Master Servicer or any of their respective affiliates has made or will make any
representation as to the accuracy or completeness of such information.
----------------------------
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
At December 31, At December 31,
1995 1996
---------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. of By Dollar By No. By Dollar By No. of By Dollar
of Loans Amount Loans Amount of Loans Amount Loans Amount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio......................
Period of Delinquency
31-59 Days......................
60-89 Days......................
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
1997 1998
---------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. of By Dollar By No. By Dollar By No. of By Dollar
of Loans Amount Loans Amount of Loans Amount Loans Amount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio......................
Period of Delinquency
31-59 Days......................
60-89 Days......................
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<PAGE>
90 days or more.....
Total Delinquent Loans.
Loans in Foreclosure(1)
</TABLE>
- -----------------
(1) Loans in foreclosure are also included under the heading "Total Delinquent
Loans".
------------------------
<TABLE>
<CAPTION>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
At December 31, At December 31, At December 31, At September 30,
1995 1996 1997 1998
-------------------------------------------------------------------------------------------------
By Dollar By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio
Foreclosed Loans(1)
Foreclosure Ratio(2)
</TABLE>
- ------------------
(1) For the purposes of these tables, Foreclosed Loans means the principal
balance of mortgage loans secured by mortgaged properties the title to
which has been acquired by _______, by investors or by an insurer following
foreclosure or delivery of a deed in lieu of foreclosure.
(2) The Foreclosure Ratio is equal to the aggregate principal balance or number
of Foreclosed Loans divided by the aggregate principal balance, or number,
as applicable, of mortgage loans in the Total Portfolio at the end of the
indicated period.
----------------------------
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE ON _________'S
SERVICING PORTFOLIO OF MORTGAGE LOANS
(DOLLARS IN THOUSANDS)
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------------------------------------------
1995 1996 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Portfolio(1)
Net Losses(2)(3)
Net Losses as a Percentage of
Total
Portfolio(4)
</TABLE>
- ------------------------
(1) "Total Portfolio" on the date stated above is the principal balances of the
mortgage loans outstanding on the last day of the period.
(2) "Net Losses" means "Gross Losses" minus "Recoveries." "Gross Losses" are
actual losses incurred on liquidated properties for each respective period.
Losses are calculated after repayment of all principal, foreclosure costs
and accrued interest to the date of liquidation. "Recoveries" are
recoveries from liquidation proceeds and deficiency judgments.
(3) "Net Losses" are computed on a loan-by-loan basis and are reported with
respect to the period in which the loan is liquidated. If additional costs
are incurred or recoveries are received after the end of the period, the
amounts are adjusted with respect to the period in which the related loan
was liquidated. Accordingly, the Net Losses reported in the table may
change in future periods. The information in this table reflects costs and
recoveries through November 30, 1998.
(4) For the nine months ended September 30, 1998, "Net Losses" as a Percentage
of Total Portfolio" was annualized by multiplying "Net Losses" by 1.33
before calculating the percentage of "Net Losses as a Percentage of Total
Portfolio".
----------------------------
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<PAGE>
THE TRUSTEE
_______________, a national banking association, will act as Trustee for
the Certificates pursuant to the Agreement. The Trustee's offices for notices
under the Agreement are located at _________________, and its telephone number
is __________. In the event the Trust Administrator advises the Trustee that it
is unable to continue to perform its obligations pursuant to the terms of the
Agreement prior to the appointment of a successor, the Trustee shall be
obligated to perform such obligations until a new trust administrator is
appointed.
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to the related portion of accrued
interest at the Administration Fee Rate of ______% per annum on the Scheduled
Principal Balance of the Mortgage Loans (the "Administration Fee"). The
Agreement will provide that the Trustee and any director, officer, employee or
agent of the Trustee will be indemnified by the Trust Fund and will be held
harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee, including the
compensation and the expenses and disbursements of its agents and counsel, in
the ordinary course of the Trustee's performance in accordance with the
provisions of the Agreement) incurred by the Trustee in connection with any
pending or threatened claim or legal action arising out of or in connection with
the acceptance or administration of its obligations and duties under the
Agreement, other than any loss, liability or expense (i) resulting from a breach
of either Servicer's or the Trust Administrator's obligations and duties under
the Agreement, (ii) that constitutes a specific liability of the Trustee under
the Agreement or (iii) incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Trustee's duties under the Agreement or as
a result of a breach, or by reason of reckless disregard, of the Trustee's
obligations and duties under the Agreement.
THE TRUST ADMINISTRATOR
_______________, a national banking association, will act as Trust
Administrator for the Certificates pursuant to the Agreement. The Trust
Administrator's offices for notices under the Agreement are located at
__________________, and its telephone number is ______________. The Trust
Administrator will perform certain administrative functions on behalf of the
Trustee and will act as initial paying agent, certificate registrar and
custodian.
The principal compensation to be paid to the Trust Administrator in respect
of its obligations under the Agreement will be equal to the related portion of
the Administration Fee. The Agreement will provide that the Trust Administrator
and any director, officer, employee or agent of the Trust Administrator will be
indemnified by the Trust Fund and will be held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trust Administrator, including the compensation and the
expenses and disbursements of its agents and counsel, in the ordinary course of
the Trust Administrator's performance in accordance with the provisions of the
Agreement) incurred by the Trust Administrator in connection with any pending or
threatened claim or legal action arising out of or in connection with the
acceptance or administration of its obligations and duties under the Agreement,
other than any loss, liability or expense (i) resulting from a breach of either
Servicer's or the Trustee's obligations and duties under the Agreement, (ii)
that constitutes a specific liability of the Trust Administrator under the
Agreement or (iii) incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Trust Administrator's duties under the
Agreement or as a result of a breach, or by reason of reckless disregard, of the
Trust Administrator's obligations and duties under the Agreement.
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<PAGE>
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to ___________, in its capacity as
Master Servicer, will be equal to accrued interest at the Master Servicing Fee
Rate of ____% per annum with respect to each Mortgage Loan serviced by _________
on the Scheduled Principal Balance of each such Mortgage Loan (the "Master
Servicing Fee"). The principal compensation to be paid to each of __________ and
___________, in its capacity as a Servicer, in respect of its servicing
activities for the Certificates will be equal to accrued interest at the
Servicing Fee Rate of ____% per annum with respect to each Mortgage Loan
serviced by it on the Scheduled Principal Balance of each such Mortgage Loan
(the "Servicing Fee"). As additional servicing compensation, each Servicer is
entitled to retain all assumption fees, late payment charges and other
miscellaneous servicing fees in respect of the Mortgage Loans serviced by it
(with the exception of Prepayment Charges, which will be distributed to the
holders of the Class P Certificates) to the extent collected from mortgagors,
together with any interest or other income earned on funds held in the
Certificate Account and any escrow accounts in respect of the Mortgage Loans
serviced by it.
Each Servicer is obligated to offset any Prepayment Interest Shortfall in
respect of the Mortgage Loans serviced by it on any Distribution Date (payments
made by such Servicer in satisfaction of such obligation, "Compensating
Interest") to the extent of its Servicing Fee for such Distribution Date. Each
Servicer is obligated to pay certain insurance premiums and certain ongoing
expenses associated with the Mortgage Pool in respect of the Mortgage Loans
serviced by it and incurred by such Servicer in connection with its
responsibilities under the Agreement and is entitled to reimbursement therefor
as provided in the Agreement. See "Description of the Securities--Retained
Interest; Servicing Compensation and Payment of Expenses" in the prospectus for
information regarding expenses payable by the Servicers and "Federal Income Tax
Consequences" in this prospectus supplement regarding certain taxes payable by
the Servicers.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The Master Servicer has the option to purchase from the Trust Fund any
Mortgage Loan that is 90 days or more delinquent, which the Master Servicer
determines in good faith will otherwise become subject to foreclosure
proceedings; provided, however, that (i) the Master Servicer shall purchase any
such Mortgage Loans on the basis of delinquency, purchasing the most delinquent
Mortgage Loans first and (ii) after it has purchased __% of the Mortgage Loans,
by aggregate principal balance as of the Cut-off Date, pursuant to clause (i)
above, the Master Servicer must also obtain the consent of the Insurer prior to
any further purchases of delinquent Mortgage Loans. Notwithstanding the
foregoing, prior to purchasing any Mortgage Loan serviced by ___________, the
Master Servicer must give ___________ the right of first refusal to purchase
such Mortgage Loan.
EVENTS OF DEFAULT
In addition to those Events of Default (as defined in the prospectus)
described under "Description of the Securities--Events of Default" in the
prospectus, upon the occurrence of certain loss and delinquency triggers with
respect to the Mortgage Loans serviced by the related Servicer or upon the
occurrence of certain other defaults set forth in the Agreement, each Servicer
may be removed as servicer of such Mortgage Loans in accordance with the terms
of the Agreement and the Insurance Agreement. In addition, if ______________ is
terminated in its capacity as Servicer under the Agreement, it shall also be
terminated as Master Servicer.
Pursuant to the Agreement, each Servicer covenants and agrees to act as a
Servicer for an initial term from the Closing Date to __________ __, ____, which
term shall be extendable by the Insurer for successive terms of three (3)
calendar months thereafter, until the termination of the Trust Fund. Each such
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<PAGE>
notice of extension (a "Servicer Extension Notice") shall be delivered by the
Insurer to the Trustee, the Trust Administrator and the related Servicer. Each
Servicer will, upon its receipt of any such Servicer Extension Notice, become
bound for the duration of the term covered by such Servicer Extension Notice to
continue as a Servicer subject to and in accordance with the other provisions of
the Agreement. If as of the fifteenth (15th) day prior to the last day of any
term of such Servicer, the Trust Administrator shall not have received any
Servicer Extension Notice from the Insurer, the Trust Administrator will, within
five (5) days thereafter, give written notice of such non-receipt to the
Insurer, the related Servicer and the Trustee. The failure of the Insurer to
deliver a Servicer Extension Notice by the end of a calendar term shall result
in the termination of the related Servicer.
Any successor to either Servicer appointed under the Agreement must be a
housing loan servicing institution acceptable to each Rating Agency (as defined
in the prospectus) with a net worth at the time of such appointment of at least
$15,000,000. See "Description of the Securities--Rights Upon Event of Default"
in the prospectus.
VOTING RIGHTS
At all times, __% of all Voting Rights will be allocated among the holders
of the Offered Certificates and the Class CE Certificates in proportion to the
then outstanding Certificate Principal Balances of their respective
Certificates, __% of all Voting Rights will be allocated to the holders of the
Class P Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates and __/__ of __% of all Voting Rights
will be allocated among the holders of each class of Residual Certificates in
proportion to the percentage interests in such classes evidenced by their
respective Certificates. Unless an Insurer Default exists, the Insurer will be
entitled to exercise certain voting and other rights of the holders of the
Offered Certificates. See "--Certain Matters Regarding the Insurer" in this
prospectus supplement.
CERTAIN MATTERS REGARDING THE INSURER
Under the Agreement, on each Distribution Date, the Trust Administrator is
required to pay to the Insurer a premium with respect to the Policy equal to
__/__ times ____% per annum times the Certificate Principal Balance of the
Offered Certificates.
Pursuant to the terms of the Agreement, unless there exists a continuance
of any failure by the Insurer to make a required payment under the Policy or
there exists a proceeding in bankruptcy by or against the Insurer (either such
condition, an "Insurer Default"), the Insurer will be entitled to exercise,
among others, the following rights of the holders of the Offered Certificates,
without the consent of such holders, and the holders of the Offered Certificates
may exercise such rights only with the prior written consent of the Insurer: (i)
the right to direct the Trustee to terminate the rights and obligations of the
either Servicer under the Agreement in the event of a default by such Servicer;
(ii) the right to consent to or direct any waivers of defaults by either
Servicer; (iii) the right to remove the Trustee or the Trust Administrator
pursuant to the Agreement; and (iv) the right to institute proceedings against
either Servicer in the event of default by such Servicer and refusal of the
Trustee to institute such proceedings. In addition, unless an Insurer Default
exists, the Insurer will have the right to direct all matters relating to any
proceeding seeking the avoidance as a preferential transfer under applicable
bankruptcy, insolvency, receivership or similar law of any distribution made
with respect to the Offered Certificates, and, unless an Insurer Default exists,
the Insurer's consent will be required prior to, among other things, (i) the
removal of the Trustee or the Trust Administrator, (ii) the appointment of any
successor Trustee, Trust Administrator or Servicer, as the case may be, or (iii)
any amendment to the Agreement.
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<PAGE>
TERMINATION
The circumstances under which the obligations created by the Agreement will
terminate in respect of the Certificates are described in "Description of the
Securities--Termination" in the prospectus. The majority holder of the Class CE
Certificates (or if such holder does not exercise such option, the Master
Servicer or the Insurer) will have the right to purchase all remaining Mortgage
Loans and any properties acquired in respect thereof and thereby effect early
retirement of the Certificates on any Distribution Date following the Due Period
during which the aggregate principal balance of the Mortgage Loans (and
properties acquired in respect thereof) remaining in the Trust Fund at the time
of purchase is reduced to less than __%, in the event the majority holder of the
Class CE Certificates exercises such option, or __%, in the event the Master
Servicer or the Insurer exercises such option, of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date. In the event the majority
holder of the Class CE Certificates exercises such option, the purchase price
payable in connection therewith generally will be equal to par, and in the event
the Master Servicer or the Insurer exercises such option, the purchase price
payable in connection therewith generally will be equal to the greater of par or
the fair market value of the Mortgage Loans and such properties, in each case
plus accrued interest for each Mortgage Loan at the related Mortgage Rate to but
not including the first day of the month in which such repurchase price is
distributed, together with any amounts due to the Servicers for unpaid Servicing
Fees and any unreimbursed advances and any amounts due to ___________, in its
capacity as Master Servicer for any unpaid Master Servicing Fees. In the event
the majority holder of the Class CE Certificates or the Master Servicer or the
Insurer exercises such option, the portion of the purchase price allocable to
the Offered Certificates will be, to the extent of available funds (including
funds paid under the Policy), (i) 100% of the then outstanding Certificate
Principal Balance thereof, plus (ii) one month's interest on the then
outstanding Certificate Principal Balance thereof at the then applicable
Pass-Through Rate for such class, plus (iii) any previously accrued but unpaid
interest thereon to which the holders of such Certificates are entitled. The
holders of the Residual Certificates shall pledge any amount received in a
termination in excess of par to the holders of the Class CE Certificates. In no
event will the trust created by the Agreement continue beyond the expiration of
21 years from the death of the survivor of the persons named in the Agreement.
See "Description of the Securities--Termination" in the prospectus.
THE INSURER
The following information has been supplied by __________________ (the
"Insurer") for inclusion in this prospectus supplement. No representation is
made by the Depositor or the Underwriter as to the accuracy and completeness of
such information.
GENERAL
The principal executive offices of the Insurer are located at
_______________, and its telephone number at that location is __________.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the Insurer or any of its
domestic or Bermuda operating insurance company subsidiaries
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<PAGE>
are generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, the Insurer
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by the Insurer as
a risk management device and to comply with certain statutory and rating agency
requirements; it does not alter or limit the Insurer's obligations under any
financial guaranty insurance policy.
RATINGS
The Insurer's insurance financial strength is rated "Aaa" by _________. The
Insurer's insurer financial strength is rated "AAA" by each of ____________ and
____________. The Insurer's claims-paying ability is rated "AAA" by ___________
and ___________ and _______________. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Ratings".
CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
ACTUAL AS ADJUSTED(1)
(UNAUDITED)
(IN THOUSANDS)
--------------
<S> <C> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)................................ $___________ $__________
Surplus Notes.............................................................
Minority Interest.........................................................
Shareholder's Equity
Common Stock.........................................................
Additional Paid-In Capital...........................................
Accumulated Other Comprehensive Income (net of deferred
income taxes)........................................................
Accumulated Earnings.................................................
Total Shareholder's Equity................................................
Total Deferred Premium Revenue, Surplus Notes, Minority Interest and
Shareholder's Equity......................................................
</TABLE>
- ------------------
(1) Adjusted to give effect to the ____________ (a) purchase by _________ of $__
million of surplus notes from the Insurer in connection with the formation of a
new indirect _________ subsidiary of the Insurer, initially capitalized with
$___ million, including a $__ million minority interest owned by ____________,
and (b) contribution by _______ to the capital of the Insurer of approximately
$__ million, representing a portion of the proceeds from the sale by Holdings of
$___ million of _______% Senior Quarterly Income Debt Securities due ____.
For further information concerning the Insurer, see the Consolidated
Financial Statements of the Insurer and subsidiaries, and the notes thereto,
incorporated by reference in this prospectus supplement. The Insurer's financial
statements are included as exhibits in the Annual Reports on Form 10-K and the
Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission
(the "Commission") and may be reviewed at the EDGAR web site maintained by the
Commission and at Holding's website, HTTP://WWW._______.COM. Copies of the
statutory quarterly and annual financial statements filed with the State of New
York Insurance Department by the Insurer are available upon request to the State
of New York Insurance Department.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under "Incorporation of Certain
Information by Reference" in the prospectus, the consolidated financial
statements of the Insurer and subsidiaries included in or as exhibits to the
following documents which have been filed with the Securities and Exchange
Commission by _________, are hereby incorporated by reference in this prospectus
supplement, which together with the prospectus, forms a part of the Depositor's
Registration Statement: (a) the Annual Report on Form 10-K for the year ended
December 31, 1997 and (b) the Quarterly Report on Form 10-Q for the period ended
September 30, 1998.
All financial statements of the Insurer and subsidiaries included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
Offered Certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing such documents.
The Depositor will provide without charge to any person to whom this
prospectus supplement is delivered, upon oral or written request of such person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for such copies should be directed to the Secretary, [New
Century Entity], 18400 Von Karman, Irvine, California 92612.
INSURANCE REGULATION
The Insurer is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of New York, its state of
domicile. In addition, the Insurer and its insurance subsidiaries are subject to
regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. As a financial guaranty insurance corporation
licensed to do business in the State of New York, the Insurer is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions ("single risks")
and the volume of transactions ("aggregate risks") that may be underwritten by
each such insurer. Other provisions of the New York Insurance Law, applicable to
non-life insurance companies such as the Insurer, regulate, among other things,
permitted investments, payment of dividends, transactions with affiliates,
mergers, consolidations, acquisitions or sales of assets and incurrence of
liability for borrowings.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the
Trust Fund as real estate mortgage investment conduits ("REMIC I", "REMIC II"
and "REMIC III", respectively, and each a "REMIC") for federal income tax
purposes. Upon the issuance of the Offered Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the Agreement, for federal
income tax purposes, each of REMIC I, REMIC II and REMIC III will qualify as a
REMIC under Sections 860A through 860G of the Internal Revenue Code of 1986 (the
"Code").
For federal income tax purposes, (i) the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, (ii) separate non-certificated
regular interests in REMIC I will be issued and will be the "regular interests"
in REMIC I, (iii) the Class R-II Certificates will be the sole class of
"residual interests" in REMIC II, (iv) separate non-certificated regular
interests in REMIC II will be issued and will be the "regular interests" in
REMIC II, (v) the Class R-III Certificates will be the sole class of "residual
interests" in REMIC III, and (vi) the Offered Certificates, the Class CE
Certificates and the Class P
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<PAGE>
Certificates will be the "regular interests" in, and will be treated as debt
instruments of, REMIC III. See "Federal Income Tax
Consequences--REMIC--Classification of REMICs" in the prospectus.
For federal income tax reporting purposes, the Offered Certificates will
not be treated as having been issued with original issue discount. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, premium and market discount, if any, for federal income
tax purposes will be based on the assumption that subsequent to the date of any
determination the Mortgage Loans will prepay at a constant rate equal to ___% of
the Prepayment Vector. No representation is made that the Mortgage Loans will
prepay at such rate or at any other rate. See "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount" in the prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. The OID
Regulations in some circumstances permit the holder of a debt instrument to
recognize original issue discount under a method that differs from that of the
issuer. Accordingly, it is possible that holders of Offered Certificates issued
with original issue discount may be able to select a method for recognizing
original issue discount that differs from that used in preparing reports to
Certificateholders and the IRS. Prospective purchasers of Offered Certificates
issued with original issue discount are advised to consult their tax advisors
concerning the tax treatment of such Certificates in this regard.
The Offered Certificates may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of a Offered Certificate
will be treated as holding a Certificate with amortizable bond premium will
depend on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of Offered Certificates should consult their own tax
advisors regarding the possibility of making an election to amortize such
premium. See "Federal Income Tax Consequences-- REMICs--Taxation of Owners of
REMIC Regular Certificates--Premium" in the prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code, generally in the same proportion that the assets in the Trust Fund
would be so treated. In addition, interest on the Offered Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code, generally to the extent that the Offered
Certificates are treated as "real estate assets" under Section 856(c)(4)(A) of
the Code. The Offered Certificates will also be treated as "qualified mortgages"
under Section 860G(a)(3) of the Code. See "Federal Income Tax Consequences--
REMICs--Characterization of Investments in REMIC Certificates" in the
prospectus.
It is not anticipated that any of REMIC I, REMIC II or REMIC III will
engage in any transactions that would subject it to the prohibited transactions
tax as defined in Section 860F(a)(2) of the Code, the contributions tax as
defined in Section 860G(d) of the Code or the tax on net income from foreclosure
property as defined in Section 860G(c) of the Code. However, in the event that
any such tax is imposed on REMIC I, REMIC II or REMIC III, such tax will be
borne (i) by the Trust Administrator, if the Trust Administrator has breached
its obligations with respect to REMIC compliance under the Agreement, (ii) by
__________, if ____________, in its capacity as Master Servicer or as a
Servicer, has breached its obligations with respect to REMIC compliance under
the Agreement, (iii) by ___________, if ___________, in its capacity as a
Servicer has breached its obligations with respect to REMIC compliance under the
Agreement, (iv) by the Trustee, if the Trustee has breached its obligations with
respect to REMIC compliance under the Agreement and (v) otherwise by the Trust
Fund, with a resulting reduction in amounts otherwise distributable to holders
of the related Offered Certificates. See "Description of the Securities--
General" and "Federal Income Tax Consequences--REMICs--Prohibited Transactions
and Other Possible REMIC Taxes" in the prospectus.
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<PAGE>
The responsibility for filing annual federal information returns and other
reports will be borne by the Trustee, the Trust Administrator or the Master
Servicer. See "Federal Income Tax Consequences--REMICs-- Reporting and Other
Administrative Matters" in the prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated _________ __, ____ (the "Underwriting Agreement"), the
Depositor has agreed to sell, and _____________ (the "Underwriter") has agreed
to purchase the Offered Certificates. The Underwriter is obligated to purchase
all Offered Certificates if it purchases any. The Underwriter is an affiliate of
the Depositor.
Distribution of the Offered Certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates, before deducting expenses payable by the Depositor, will be 99.50%
of the aggregate initial Certificate Principal Balance of the Offered
Certificates, plus accrued interest thereon. In connection with the purchase and
sale of the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
The Offered Certificates are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Offered Certificates will be made
through the facilities of
DTC on or about the Closing Date.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There is currently no secondary market for the Offered Certificates and
there can be no assurance that a secondary market for the Offered Certificates
will develop or, if it does develop, that it will continue. The Underwriter
intends to establish a market in the Offered Certificates but it is not
obligated to do so. The primary source of information available to investors
concerning the Offered Certificates will be the monthly statements discussed in
the prospectus under "Description of the Securities--Reports to
Certificateholders", which will include information as to the outstanding
principal balance of the Offered Certificates and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Offered Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered Certificates becomes
available.
S-53
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor and the Underwriter by Thacher Proffitt & Wood, New York,
New York.
EXPERTS
The consolidated balance sheets of the Insurer and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1997, incorporated by reference in this prospectus
supplement, have been incorporated in this prospectus supplement in reliance on
the report of _______________, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
RATINGS
It is a condition to the issuance of the Certificates that the Offered
Certificates be rated "Aaa" by ____________ ("______") and "AAA" by
_____________ ("________").
The ratings of ________ and ___________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by Certificateholders of all
distributions to which such Certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which such prepayments will differ from that originally anticipated.
The ratings assigned by __________ and _________ on the Offered Certificates are
based in part upon the Insurer's claims paying ability. Any change in the
ratings of the Insurer by _________ or ___________ may result in a change in the
ratings on the Offered Certificates. The ratings do not address the possibility
that Certificateholders might suffer a lower than anticipated yield due to
non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Offered Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the Offered Certificates.
The Depositor has not requested that any rating agency rate the Offered
Certificates other than as stated above. However, there can be no assurance as
to whether any other rating agency will rate the Offered Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Offered Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Offered Certificates as stated above.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
because the Mortgage Pool includes certain Mortgage Loans that are secured by
subordinate liens on the related Mortgaged Properties.
The Depositor makes no representations as to the proper characterization of
any class of Offered Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase any class of Offered
Certificates under applicable legal investment restrictions. These uncertainties
may
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<PAGE>
adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of Offered Certificates constitutes a legal
investment or is subject to investment, capital or other restrictions. On
December 1, 1998, the Office of Thrift Supervision (the "OTS") issued Thrift
Bulletin 13a, entitled "Management of Interest Rate Risk, Investment Securities,
and Derivatives Activities" ("TB 13a"), which is applicable to thrift
institutions regulated by the OTS. TB 13a should be reviewed by any such thrift
institution prior to investing in the Offered Certificates.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (each, a "Plan") or any person investing
Plan Assets of any Plan (as defined in the prospectus under "ERISA
Considerations") should carefully review with its legal advisors whether the
purchase, sale or holding of Certificates will give rise to a prohibited
transaction under ERISA or Section 4975 of the Code.
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23 (the "Exemption"), as described under "ERISA
Considerations" in the prospectus, to the Underwriter. The Exemption generally
exempts from the application of certain of the prohibited transaction provisions
of Section 406 of ERISA, and the excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b) of the Code and Section 502(i) of ERISA,
transactions relating to the purchase, sale and holding of pass-through
certificates underwritten by the Underwriter, such as the Offered Certificates,
and the servicing and operation of asset pools such as the Mortgage Pool,
provided that certain conditions are satisfied. The purchase of the Offered
Certificates by, on behalf of or with the Plan Assets of any Plan may qualify
for exemptive relief under the Exemption. However, the Exemption contains a
number of conditions which must be met for the Exemption to apply (as described
in the prospectus), including the requirement that any such Plan must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
A fiduciary of a Plan contemplating purchasing an Offered Certificate must make
its own determination that the conditions set forth in the Exemption will be
satisfied with respect to the Offered Certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm (a) that the Offered Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. Any Plan fiduciary that proposes to cause a Plan to purchase a
Certificate should consult with its counsel with respect to the potential
applicability to such investment of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to the proposed investment. For
further information regarding the ERISA considerations of investing in the
Certificates, see "ERISA Considerations" in the prospectus.
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<PAGE>
$___________ (APPROXIMATE)
NEW CENTURY MORTGAGE SECURITIES, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
MASTER SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED HEREBY IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR COVER PAGES.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Offered Certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until ______ __,
____.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated April __, 1999
[Version 3]
Prospectus Supplement
(To Prospectus dated , ____)
$_______________ (APPROXIMATE)
ASSET BACKED FLOATING RATE NOTES, SERIES ____-__
NEW CENTURY TRUST SERIES ____-__
NEW CENTURY MORTGAGE SECURITIES, INC.
DEPOSITOR
MASTER SERVICER
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
The notes will represent interests only in a trust consisting primarily of
mortgage loans and will not represent ownership interests in or obligations of
any other entity.
This prospectus supplement may be used to offer and sell the notes offered
hereby only if accompanied by the prospectus.
THE TRUST --
o will consist primarily of a mortgage pool of one- to four-family
fixed-rate and adjustable-rate residential mortgage loans; and
o will be represented by ______ classes of notes, ______ of which are
offered hereby.
THE OFFERED NOTES --
o will represent senior and subordinate interests in the trust and will
receive distributions from the assets of the trust; and
o will receive monthly distributions commencing on ________, __ ____
CREDIT ENHANCEMENT --
o the senior notes will have credit enhancement in the form of
subordination; and
o the subordinate notes will have credit enhancement in the form of
subordination provided by certain classes of offered subordinate notes with
lower payment priorities;
_______________ (the "Underwriter") will offer the Class A Notes, the Class M-1
Notes, the Class M-2 Notes and the Class M-3 Notes (collectively, the "Offered
Notes") from time to time to the public in negotiated transactions or otherwise
at varying prices to be determined at the time of sale. The proceeds to the
Depositor from the sale of such notes, before deducting expenses, will be
approximately _____% of the initial note balance, plus accrued interest on such
notes. The Underwriter's commission will be any positive difference between the
price it pays to the Depositor for such notes and the amount it receives from
the sale of such notes to the public. See "Method of Distribution" herein.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED NOTES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.
We provide information to you about the Offered Notes in two separate documents
that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of notes; and
o this prospectus supplement, which describes the specific terms of this
series of notes.
New Century Mortgage Securities, Inc.'s principal offices are located at 18400
Von Karman, Irvine, California 92612 and its phone number is (949) 440-7030.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT.............................................................................S-__
RISK FACTORS.................................................................................................S-__
USE OF PROCEEDS..............................................................................................S-__
THE MORTGAGE POOL............................................................................................S-__
YIELD ON THE NOTES...........................................................................................S-__
DESCRIPTION OF THE NOTES.....................................................................................S-__
THE ISSUER...................................................................................................S-__
THE SELLER...................................................................................................S-__
THE _______ SPE..............................................................................................S-__
THE OWNER TRUSTEE............................................................................................S-__
THE INDENTURE TRUSTEE........................................................................................S-__
THE SERVICING AGREEMENT......................................................................................S-__
THE INDENTURE AND OWNER TRUST AGREEMENT......................................................................S-__
FEDERAL INCOME TAX CONSEQUENCES..............................................................................S-__
METHOD OF DISTRIBUTION.......................................................................................S-__
SECONDARY MARKET.............................................................................................S-__
LEGAL OPINIONS...............................................................................................S-__
RATINGS......................................................................................................S-__
LEGAL INVESTMENT.............................................................................................S-__
ERISA CONSIDERATIONS.........................................................................................S-__
</TABLE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE NOTES OFFERED
HEREBY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER IN
MAKING YOUR INVESTMENT DECISION. TO
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<PAGE>
UNDERSTAND ALL OF THE TERMS OF THE OFFERED NOTES, READ CAREFULLY THIS ENTIRE
PROSPECTUS SUPPLEMENT AND THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series....................New Century Mortgage Securities, Inc.,
Asset-Backed Floating Rate Notes, Series
____-_.
Cut-off Date.......................__________ __, ____.
Closing Date.......................On or about __________ __, ____.
Issuer.............................New Century Trust Series ____-__ (the
"Issuer").
Depositor..........................New Century Mortgage Securities, Inc.. The
Depositor will deposit the mortgage loans
into the trust. SEE "THE DEPOSITOR" IN THE
PROSPECTUS.
Master Servicer....................__________________. SEE "THE SERVICING
AGREEMENTS--MASTER SERVICER" HEREIN.
Originators and Servicers..........______________, ______________ and
____________. SEE "THE MORTGAGE
POOL--UNDERWRITING STANDARDS;
REPRESENTATIONS" AND "THE SERVICING
AGREEMENTS--THE ORIGINATORS AND SERVICERS" IN
THIS PROSPECTUS SUPPLEMENT.
Seller............................._______________. SEE "THE SELLER" HEREIN.
________ SPE......................._______________. SEE "THE ___________ SPE"
HEREIN.
Owner Trustee......................________________. SEE "THE OWNER TRUSTEE"
HEREIN.
Indenture Trustee..................__________________. SEE "THE INDENTURE
TRUSTEE" HEREIN.
Distribution Dates.................Distributions on the offered notes will be
made on the __th day of each month, or, if
such day is not a business day, on the next
succeeding business day, beginning in ______
____.
Offered Notes......................Only the notes set forth in the table below
are being offered pursuant to this prospectus
supplement. The classes of offered notes and
their interest rates, note balances and final
maturity date are set forth in the table
below.
<TABLE>
<CAPTION>
NOTE INTEREST FINAL MATURITY DATE
CLASS INITIAL NOTE RATE
BALANCE(1)
- ----------- ------------------- --------------------- -----------------------------------
<S> <C> <C> <C>
A.......... $_________ Variable(2) ________ ____
M-1........ $_________ Variable(2) ________ ____
M-2........ $_________ Variable(2) ________ ____
M-3........ $_________ Variable(2) _______ _____
=========== =================== ===================== ===================================
</TABLE>
- ----------------------
(1) Approximate.
(2) Calculated as described herein.
S-3
<PAGE>
THE ISSUER
The notes will be issued by the Issuer, a Delaware business trust established
pursuant to a trust agreement between the depositor and the owner trustee. The
Issuer will issue _____ classes of notes representing non-recourse debt
obligations of the Issuer secured by the trust estate. SEE "DESCRIPTION OF THE
NOTES" IN THIS PROSPECTUS SUPPLEMENT.
Distributions of interest and/or principal on the offered notes will be made
only from payments received in connection with the mortgage loans described
below.
EQUITY CERTIFICATES
New Century Trust Certificates, Series ____-__, will be issued pursuant to the
owner trust agreement and will represent the beneficial ownership interest in
the Issuer. The equity certificates are not offered hereby.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate and adjustable-rate mortgage loans secured by first liens on
residential real properties. The mortgage loans have an aggregate principal
balance of approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Range of mortgage rates _____% to _____%.
(approximate):
Weighted average mortgage ______%.
rate (approximate):
Weighted average remaining ___ years and ___ months.
term to stated maturity
(approximate):
Range of principal balances $__________ to
(approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value ratios _____% to _____%.
(approximate):
Weighted average
loan-to-value
ratio (approximate): ______%.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
HEREIN.
THE NOTES
OFFERED NOTES. The offered notes will have the characteristics shown in the
table above in this prospectus supplement. The interest rates on each class of
offered notes are variable and are calculated for each distribution date as
described herein under "Description of the Notes--Note Interest Rates" in this
prospectus supplement.
The offered notes will be sold by the Depositor to the Underwriter on the
closing date.
The offered notes will initially be represented by one or more global notes
registered in the name of CEDE & Co., as nominee of the Depository Trust Company
in minimum denominations of $[10,000] and integral multiples of $[1.00] in
excess thereof. SEE "DESCRIPTION OF THE NOTES --REGISTRATION" IN THIS PROSPECTUS
SUPPLEMENT.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
notes consists of subordination as described below and under "Description of the
Notes--Allocation of Losses; Subordination" herein.
SUBORDINATION. The rights of the holders of the Class M-1 Notes, the Class M-2
Notes, the Class M-3 Notes to receive distributions will be subordinated, to the
extent described herein, to the rights of the holders of the Class A Notes. The
Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes are referred to in
the prospectus supplement as "subordinate notes".
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<PAGE>
In addition, the rights of the holders of subordinate notes with higher
numerical class designations will be subordinated to the rights of holders of
subordinate notes with lower numerical class designations, to the extent
described herein.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior notes in respect of interest and principal and to afford such
notes protection against realized losses on the mortgage loans as described
below.
ALLOCATION OF LOSSES. Except as described below, if subordinate notes remain
outstanding, losses on the mortgage loans will be allocated first to the class
of subordinate notes with the lowest payment priority, and the other classes of
notes will not bear any portion of such losses. If none of the subordinate notes
remain outstanding, losses on mortgage loans will generally be allocated to the
Class A Notes.
P&I ADVANCES
Each servicer is required to advance delinquent payments of principal and
interest on the mortgage loans, subject to the limitations described herein.
Each servicer is entitled to be reimbursed for such advances, and therefore such
advances are not a form of credit enhancement. SEE "DESCRIPTION OF THE
NOTES--P&I ADVANCES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE
SECURITIES--ADVANCES IN RESPECT OF DELINQUENCIES" IN THE PROSPECTUS.
OPTIONAL REDEMPTION
At its option, the majority holder of the equity certificates may redeem the
notes and thereby effect termination and early retirement of the Notes, after
the aggregate Note balance has been reduced to less than [20%] of the aggregate
initial Note balance. SEE "THE INDENTURE AND OWNER TRUST AGREEMENT-- OPTIONAL
REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--
TERMINATION" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion generally to the effect that the notes will
be characterized as indebtedness and the Issuer will not be classified as an
association taxable as a corporation or a publicly traded partnership.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED NOTES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the notes that the offered notes receive
the following ratings from [______________ ("_____") and ___________
("---------")]:
OFFERED NOTES [RA] [RA]
- ------------- ---- ----
Class A AAA AAA
Class M-1 AA AA
Class M-2 A A
Class M-3 BBB BBB
- ---------------------
[(1) Not rated.]
A security rating does not address the frequency of prepayments on the mortgage
loans, the corresponding effect on yield to investors. [The "r" symbol in
certain _____________ ratings is attached to highlight notes that __________
believes may experience high volatility or high variability in expected returns
due to non-credit risks. The absence of an "r" symbol should not be taken as an
indication that a note will exhibit no volatility or variability in total
return.]
SEE "YIELD ON THE NOTES" AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD
CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered notes (other than the Class ___ and Class ___ Notes) will constitute
"mortgage related securities" for purposes of the Secondary Mortgage
S-5
<PAGE>
Market Enhancement Act of 1984 ("SMMEA") for so long as they are rated not lower
than the second highest rating category by one or more nationally recognized
statistical rating organizations and, as such, will be legal investments for
certain entities to the extent provided in SMMEA and applicable state laws. The
Class ___ Notes and the Class ___ Notes will not constitute "mortgage related
securities" for purposes of SMMEA. SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
Subject to important considerations, the notes may be eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. Plans should consult with their legal advisors before investing. SEE
"ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
S-6
<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following factors before deciding to invest in the Notes.
[Appropriate Risk Factors as necessary]
[THE UNDERWRITING STANDARDS OF THE MORTGAGE LOANS ARE NOT AS STRINGENT AS THOSE
UNDERWRITTEN IN A MORE TRADITIONAL MANNER, OR UNDERWRITTEN TO THE STANDARDS OF
FANNIE MAE AND FREDDIE MAC, WHICH MAY RESULT IN LOSSES ALLOCATED TO THE OFFERED
NOTES
The originators' underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The originators provide loans
primarily to borrowers who do not qualify for loans conforming to Fannie Mae and
Freddie Mac guidelines. While the originators' primary consideration in
underwriting a mortgage loan is the value of the mortgaged property, each
originator also considers, among other things, a mortgagor's credit history,
repayment ability and debt service-to-income ratio, as well as the type and use
of the mortgaged property. None of the originators' underwriting standards
prohibit a mortgagor from obtaining secondary financing at the time of
origination of the related originator's first lien. Any such secondary financing
would reduce the equity the mortgagor would otherwise have in the related
mortgaged property as indicated in the related originator's loan-to-value ratio
determination.
As a result of the originators' underwriting standards, the mortgage loans
are likely to experience rates of delinquency, foreclosure and bankruptcy that
are higher, and that may be substantially higher, than those experienced by
mortgage loans underwritten in a more traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans than on mortgage loans originated in a more traditional
manner. No assurance can be given that the values of the mortgaged properties
have remained or will remain at the levels in effect on the dates of origination
of the related mortgage loans. See "The Mortgage Pool--Underwriting Standards;
Representations" herein].
[CERTAIN MORTGAGE LOANS ARE DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY PRESENT
A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Approximately ____% of the mortgage loans were thirty days or more but less
than sixty days delinquent in their monthly payments and approximately ____% of
the mortgage loans were sixty days or more but less than ninety days delinquent
in their monthly payments as of _________ __, ____, in each case by aggregate
principal balance as of ________ __, ____. However, approximately _____% of the
mortgage loans, by aggregate principal balance as of ________ __,____, have a
first payment date occurring on or after _______ __, ____ and, therefore, such
mortgage loans could not have been delinquent as of ________ __, ____].
[CERTAIN MORTGAGE LOANS HAVE HIGH LOAN-TO-VALUE RATIOS WHICH MAY PRESENT A
GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Approximately ____% of the mortgage loans, by aggregate principal balance
as of ________ __, ____, had a loan-to-value ratio at origination in excess of
80%. No mortgage loan with a loan-to-value ratio at origination in excess of 80%
will be covered by a primary mortgage insurance policy. Mortgage loans with
higher loan-to-value ratios may present a greater risk of loss. There can be no
assurance that the loan-to-value
S-7
<PAGE>
ratio of any mortgage loan determined at any time after origination is less than
or equal to its original loan-to-value ratio. See "The Mortgage Pool--General"
herein. In addition, an overall decline in the residential real estate market, a
rise in interest rates over a period of time and the general condition of a
mortgaged property, as well as other factors, may have the effect of reducing
the value of such mortgaged property from the appraised value at the time the
mortgage loan was originated. If there is a reduction in value of the mortgaged
property, the loan-to-value ratio may increase over what it was at the time the
mortgage loan was originated. Such an increase may reduce the likelihood of
liquidation or other proceeds being sufficient to satisfy the mortgage loan.
There can be no assurance that the loan-to-value ratio of any mortgage loan
determined at any time after origination is less than or equal to its original
loan-to-value ratio].
[THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF __________, WHICH MAY
PRESENT A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Approximately _____% of the mortgage loans are secured by mortgaged
properties located in the State of ___________, by aggregate principal balance
as of _________ __, ____. As of ________ __, ____, the aggregate principal
balance of mortgage loans in the ________ zip code with the largest amount of
such mortgage loans, by aggregate principal balance as of _________ __, ____,
was approximately $_________. If the __________ residential real estate market
should experience an overall decline in property values after the dates of
origination of the mortgage loans, the rates of delinquencies, foreclosures,
bankruptcies and losses on the mortgage loans may increase over historical
levels of comparable type loans, and may increase substantially].
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL BE PARTICULARLY SENSITIVE TO
LOSSES ON THE MORTGAGE LOANS
The weighted average lives of, and the yields to maturity on, the Class
M-1, Class M-2 and Class M-3 Notes will be progressively more sensitive, in
increasing order of their numerical class designations, to the rate and timing
of mortgagor defaults and the severity of ensuing losses on the mortgage loans.
If the actual rate and severity of losses on the mortgage loans is higher than
those assumed by an investor in one of the Class M-1, Class M-2 or Class M-3
Notes, the actual yield to maturity of such note may be lower than the yield
anticipated by such holder based on such assumption. The timing of losses on the
mortgage loans will also affect an investor's actual yield to maturity, even if
the rate of defaults and severity of losses over the life of the mortgage pool
are consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Losses on the
mortgage loans in any due period, to the extent they exceed the
overcollateralized amount following payments of principal on the related payment
date, will reduce the note balance of the class of notes then outstanding with
the highest numerical class designation. As a result of such reductions, less
interest will accrue on such class of subordinate notes than would otherwise be
the case].
S-8
<PAGE>
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL GENERALLY NOT BE ENTITLED TO
RECEIVE PRINCIPAL PAYMENTS UNTIL ALL PRINCIPAL PAYMENTS HAVE BEEN MADE ON THE
CLASS A NOTES WHICH MAY LEAD TO A GREATER RISK OF LOSS WITH RESPECT TO SUCH
NOTES
Unless the note balance of the Class A notes has been reduced to zero, the
Class M-1, Class M-2 and Class M-3 notes will not be entitled to any principal
payments until _________ ____ or a later period as described herein. As a
result, the weighted average lives of such notes will be longer than would
otherwise be the case if payments of principal were allocated among all of the
notes at the same time. As a result of the longer weighted average lives of such
notes, the holders of such notes have a greater risk of suffering a loss on
their investments. Further, because such notes might not receive any principal
if certain delinquency levels occur, it is possible for the such notes to
receive no principal payments even if no losses have occurred on the mortgage
pool].
[THE NOTES ARE OBLIGATIONS OF THE TRUST ONLY
The Notes will not represent an interest in or obligation of the
originators, the depositor, the master servicer, the seller, the _________ SPE,
the owner trustee, the indenture trustee or any of their respective affiliates.
The only obligations of the foregoing entities with respect to the notes or any
mortgage loan will be the obligations of the seller pursuant to certain limited
representations and warranties made with respect to the mortgage loans and of
the servicers with respect to their servicing obligations under the related
servicing agreement (including the limited obligation to make certain advances,
as described herein). Neither the notes nor the underlying mortgage loans will
be guaranteed or insured by any governmental agency or instrumentality, or by
the Issuer, the originators, the depositor, the master servicer, the seller, the
________ SPE, the owner trustee, the indenture trustee or any of their
respective affiliates. Proceeds of the assets included in the trust (including
the mortgage loans) will be the sole source of payments on the notes, and there
will be no recourse to the Issuer, the originators, the depositor, the master
servicer, the seller, the _______ SPE, the owner trustee, the indenture trustee
or any of their respective affiliates or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the notes].
[THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE NOTES AND THE MORTGAGE LOANS
MAY RESULT IN INTEREST SHORTFALLS ALLOCATED TO THE NOTES
The note interest rate for each class of the notes adjusts monthly based on
a particular index, subject to certain limitations as described herein. However,
the mortgage rates on the fixed rate mortgage loans are fixed and will not vary
with any index, and the mortgage rates on the adjustable rate mortgage loans
adjust semi-annually (after an initial fixed rate period in the case of certain
adjustable rate mortgage loans) based on the index (which may not move in tandem
with the index), subject to periodic and lifetime limitations as described
herein. As a result of the foregoing as well as other factors such as the
prepayment behavior of the mortgage pool, relative increases in the index or
relative decreases in the weighted average of the mortgage rates on the mortgage
loans (i) could cause the amount of interest generated by the mortgage pool to
be less than the aggregate of the amount of interest that would otherwise be
payable on the notes, leading one or more classes of notes to accept payments of
interest at a later date, as described herein or (ii) could cause the maximum
note interest rate to apply to one or more classes of notes, as described
herein.
Because the mortgage rate for each adjustable rate mortgage loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
index and the related gross margin, such rates could be higher than prevailing
market interest rates, possibly resulting in an increase in the rate of
prepayments on the adjustable rate mortgage loans after their adjustments. In
particular, investors should note that approximately _____% of the adjustable
rate mortgage loans have their interest rates fixed for two years following
origination and approximately _____% of the adjustable rate mortgage loans have
their interest rates fixed for three years
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<PAGE>
following origination, in each case by aggregate principal balance as of
_________ __, ___. The weighted average next adjustment date for the adjustable
rate mortgage loans whose interest rates are fixed for two years is _______
____, and the weighted average next adjustment date for the adjustable rate
mortgage loans whose interest rates are fixed for three years is _______ ____].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED NOTES WILL BE
AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the offered
notes will depend, in general, on the rate and timing of principal payments
(including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the offered notes as provided herein. As is the case with mortgage securities
generally, the offered notes are subject to substantial inherent cash-flow
uncertainties because the mortgage loans may be prepaid at any time. However,
with respect to approximately ____% of the mortgage loans, by aggregate
principal balance as of _______ __, ____, a prepayment may subject the related
mortgagor to a prepayment charge, which may act as a deterrent to prepayment of
such mortgage loan. See "The Mortgage Pool" herein.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease; a decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of principal to investors
in the offered notes at a time when reinvestment at such higher prevailing rates
would be desirable. Conversely, when prevailing interest rates are declining,
prepayment rates on mortgage loans tend to increase; an increase in the
prepayment rates on the mortgage loans will result in a greater rate of return
of principal to investors in the offered notes at a time when reinvestment at
comparable yields may not be possible.
Distributions of principal will be made to the subordinate notes according
to the priorities described herein. The timing of commencement of principal
distributions and the weighted average life of each such class of notes will be
affected by the rates of prepayment on the mortgage loans experienced both
before and after the commencement of principal distributions on such class. For
further information regarding the effect of principal prepayments on the
weighted average lives of the offered notes, see "Yield on the Notes" herein and
the table entitled "Percent of Initial Note Balance Outstanding at the Following
Percentages of the Prepayment Assumption" therein].
[THE YIELD TO MATURITY ON THE OFFERED NOTES WILL DEPEND ON A VARIETY OF FACTORS
The yield to maturity on the offered notes will depend, in general, on:
o the applicable note interest rate and note accrual rate thereon from
time to time;
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
mortgage loans and the allocation thereof to reduce the Note balance of
such notes, as well as other factors.
The yield to investors on any class of offered notes will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered notes are purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if the offered notes are purchased
at a discount and
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<PAGE>
principal distributions thereon occur at a rate slower than that anticipated at
the time of purchase, the investor's actual yield to maturity will be lower than
that originally assumed.
The proceeds to the depositor from the sale of the offered notes were
determined based on a number of assumptions, including a prepayment assumption
of __% of the [Constant Prepayment Rate Model] and weighted average lives
corresponding thereto. No representation is made that the mortgage loans will
prepay at such rate or at any other rate. The yield assumptions for the offered
notes will vary as determined at the time of sale].
[VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
Applicable state laws generally regulate interest rates and other charges,
require certain disclosure, and require licensing of the Originators. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers
regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
and
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the
Originators to damages and administrative enforcement.
The seller will represent that as of ___________ __, ____, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of such representation, the Seller will be obligated to
cure such breach or repurchase or replace the affected mortgage loan in the
manner described in herein].
[THE SERVICING RIGHTS TO CERTAIN MORTGAGE LOANS WILL BE TRANSFERRED TO THE
MASTER SERVICER WHICH MAY LEAD TO AN INCREASE IN DELINQUENCIES WITH RESPECT TO
SUCH MORTGAGE LOANS
The master servicer and _____________ have advised the Depositor that with
respect to a portion of the mortgage loans initially to be serviced by
___________, the servicing thereof is expected to be transferred to the master
servicer by _________ __, ____, whereupon the master servicer will act in the
capacity as "servicer" under the applicable servicing agreement to the extent of
such mortgage loans. Such portion of the mortgage loans that are expected to be
subject to such servicing transfer represents approximately _____% of the
mortgage loans, by aggregate principal balance as of _________ __, ____.
Investors should note that when servicing of mortgage loans is transferred,
there may be a rise in delinquencies associated with such transfer].
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<PAGE>
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE SERVICERS TO PERFORM
THEIR DUTIES
As is the case with most companies using computers in their operations,
each Servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the Servicers' computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any such occurrence could result in major computer system
failure or miscalculations. Each Servicer is presently engaged in various
procedures to ensure that its computer systems and software will be year 2000
compliant. However, in the event that the related Servicer or any of its
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the performance of obligations of such Servicer under the
pooling and servicing agreement could be materially adversely affected].
Capitalized terms used but not defined herein have the meanings assigned to
them in the prospectus. An Index of Principal Definitions is included at the end
of the prospectus.
THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of approximately _____ conventional, one- to
four-family, fixed-rate Mortgage Loans (the "Fixed Rate Mortgage Loans") and
approximately _____ conventional, one-to four-family, adjustable-rate Mortgage
Loans (the "Adjustable Rate Mortgage Loans" and, together with the Fixed Rate
Mortgage Loans, the "Mortgage Loans"), in each case secured by first liens on
residential real properties (the "Mortgaged Properties") and having an aggregate
principal balance as of ________ __, ____ (the "Cut-off Date") of approximately
$___________ after application of scheduled payments due on or before the
Cut-off Date whether or not received, subject to a permitted variance of plus or
minus [5]%. The Mortgage Loans have original terms to maturity of not greater
than [30] years. References to percentages of the Mortgage Loans, unless
otherwise noted, are calculated based on the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. The Mortgage Loans are secured by first
mortgages or deeds of trust or other similar security instruments creating first
liens on residential properties consisting of attached, detached or
semidetached, one- to four-family dwelling units, townhouses, individual
condominium units, individual units in planned unit developments and
manufactured housing.
The Mortgage Loans to be included in the Mortgage Pool will be acquired by
the Depositor on the Closing Date from ________________ (the "_________ SPE"),
who will have acquired the Mortgage Loans on the Closing Date from the Seller.
See "--Underwriting Standards; Representations" below and "The ________ SPE" and
"The Seller" herein. The Seller in turn will have acquired the Mortgage Loans on
the Closing Date from ________________, an affiliate of the Depositor and the
Underwriter. ________________ will have acquired the Mortgage Loans directly or
indirectly from the Originators. Investors should note that, in the case of the
Adjustable Rate __________ Mortgage Loans, ______________ will have acquired
such Mortgage Loans on the Closing Date in connection with the termination on
the Closing Date of the trust funds underlying two series of mortgage
pass-through certificates previously issued by the Depositor, which trust funds
hold the Adjustable Rate __________ Mortgage Loans as of the date of this
Prospectus Supplement. Such previously issued mortgage pass-through certificates
were entitled (i) _____________ and (ii) _____________. Adjustable Rate
__________ Mortgage Loans acquired upon the termination of the Series ____-___
trust fund (the "_____-___ Mortgage Loans") represent approximately _____% of
the Mortgage Loans, and Adjustable Rate ___________ Mortgage Loans acquired upon
the termination of the Series ____- ___ trust fund represent approximately
_____% of the Mortgage Loans (the "____-___ Mortgage Loans"), in
S-12
<PAGE>
each case by aggregate principal balance as of the Cut-off Date.
________________ will have acquired the remainder of the Mortgage Loans in whole
loan purchases directly from ______________ in the case of ____% of the Mortgage
Loans (the "Fixed Rate ______________ Mortgage Loans"), _______________ in the
case of _____% of the Mortgage Loans (the "__________ Mortgage Loans") and
____________ in the case of _____% of the Mortgage Loans (the "___________
Mortgage Loans"), in each case by aggregate principal balance as of the Cut-off
Date.
Each Adjustable Rate Mortgage Loan provides for semi-annual adjustment to
the Mortgage Rate thereon and for corresponding adjustments to the monthly
payment amount due thereon, in each case on each adjustment date applicable
thereto (each such date, an "Adjustment Date"); provided, however, that in the
case of approximately _____% and approximately _____% of the Adjustable Rate
Mortgage Loans by aggregate principal balance as of the Cut-off Date, the first
Adjustment Date will occur after an initial period of approximately ____ years
and approximately ______ years, respectively, from the date of origination
thereof (each, a "Delayed First Adjustment Mortgage Loan"). The weighted average
month of origination of the _____ year Delayed First Adjustment Mortgage Loans
is _________ _____, and the weighted average month of origination of the ______
year Delayed First Adjustment Mortgage Loans is _________ _____. On each
Adjustment Date, the Mortgage Rate on each Adjustable Rate Mortgage Loan will be
adjusted to equal the sum, rounded as provided in the related Mortgage Note, of
the Index (as described below) and a fixed percentage amount (the "Gross
Margin"); provided, however, that the Mortgage Rate on each Adjustable Rate
Mortgage Loan, including each Delayed First Adjustment Mortgage Loan, will
generally not increase or decrease by more than a specified periodic adjustment
limitation (the "Periodic Rate Cap") on any related Adjustment Date and will not
exceed a specified maximum Mortgage Rate over the life of such Adjustable Rate
Mortgage Loan (the "Maximum Mortgage Rate") or be less than a specified minimum
Mortgage Rate over the life of such Adjustable Rate Mortgage Loan (the "Minimum
Mortgage Rate"). For Adjustment Dates other than the first Adjustment Date after
origination, the Periodic Rate Cap for the majority of the Adjustable Rate
Mortgage Loans is 1.00% per annum, and with respect to substantially all of the
Adjustable Rate Mortgage Loans, for Adjustment Dates other than the first
Adjustment Date after origination, the Periodic Rate Cap will not exceed ____%
per annum. Effective with the first monthly payment due on each Adjustable Rate
Mortgage Loan after each related Adjustment Date, the monthly payment amount
will be adjusted to an amount that will amortize fully the outstanding principal
balance of the related Adjustable Rate Mortgage Loan over its remaining term and
pay interest at the Mortgage Rate as so adjusted. Due to the application of the
Periodic Rate Caps and the Maximum Mortgage Rates, the Mortgage Rate on each
Mortgage Loan, as adjusted on any related Adjustment Date, may be less than the
sum of the Index and Gross Margin, calculated as described herein. See "--The
Index" herein. None of the Adjustable Rate Mortgage Loans permits the related
mortgagor to convert the adjustable Mortgage Rate thereon to a fixed Mortgage
Rate.
The Mortgage Loans generally have scheduled monthly payments due (with
respect to each Mortgage Loan, a "Due Date") on the first day of the month .
Each Mortgage Loan will contain a customary "due-on-sale" clause or will be
assumable by a creditworthy purchaser of the related Mortgaged Property.
Approximately ______% of the Mortgage Loans provide for payment by the
mortgagor of a Prepayment Charge in limited circumstances on certain voluntary
prepayments in full made within one to five years from the date of origination
of such Mortgage Loans. The amount of the Prepayment Charge is as provided in
the related Mortgage Note. Prepayment Charge obligations generally expire by
their terms after a limited period specified in the related Mortgage Note. The
weighted average month of origination of the Mortgage Loans with Prepayment
Charges is _________ ____. The holders of the Equity Certificates will be
entitled to all Prepayment Charges received on the Mortgage Loans, and such
amount will [not] be available for distribution on the Notes. Under certain
instances, as described in the related Servicing Agreement, the related Servicer
may waive the payment of any otherwise applicable Prepayment Charge, and
accordingly, there can be no assurance that the Prepayment Charges will have any
effect on the prepayment performance of the Mortgage Loans.
S-13
<PAGE>
None of the Mortgage Loans are Buydown Mortgage Loans.
Approximately ____% of the Mortgage Loans are balloon loans (the "Balloon
Loans"). Each Balloon Loan is a Fixed Rate Mortgage Loan that amortizes over ___
months, but the final payment (the "Balloon Payment") on each Balloon Loan is
due and payable on the ___th month. The amount of the Balloon Payment on each
Balloon Loan is substantially in excess of the amount of the scheduled monthly
payment on such Balloon Loan for the period prior to the Due Date of such
Balloon Payment.
The average principal balance of the Mortgage Loans at origination was
approximately $_______. No Mortgage Loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the Mortgage Loans as of the Cut-off Date was
approximately $_______.
The Mortgage Loans had Mortgage Rates as of the Cut-off Date ranging from
approximately ____% per annum to approximately _____% per annum, and the
weighted average Mortgage Rate was approximately ______% per annum. The weighted
average loan-to-value ratio of the Mortgage Loans at origination was
approximately _____%. At origination, no Mortgage Loan will have a loan-to-value
ratio greater than approximately _____% or less than approximately ____%.
The weighted average remaining term to maturity of the Mortgage Loans will
be approximately __ years and __ months as of the Cut-off Date. None of the
Mortgage Loans will have a first Due Date prior to _______ ____ or after
___________ ____, or will have a remaining term to maturity of less than __
years or greater than __ years as of the Cut-off Date. The latest maturity date
of any Mortgage Loan is __________.
As of the Cut-off Date, the Adjustable Rate Mortgage Loans had Gross
Margins ranging from approximately ____% to approximately ____%, Minimum
Mortgage Rates ranging from approximately ____% per annum to approximately
_____% per annum and Maximum Mortgage Rates ranging from approximately _____%
per annum to approximately _____% per annum. As of the Cut-off Date, the
weighted average Gross Margin was approximately ______%, the weighted average
Minimum Mortgage Rate was approximately _____% per annum and the weighted
average Maximum Mortgage Rate was approximately _______% per annum. The latest
first Adjustment Date following the Cut-off Date on any Adjustable Rate Mortgage
Loan occurs in _______ ____ and the weighted average next Adjustment Date for
all of the Mortgage Loans following the Cut-off Date is _______ ____.
The Mortgage Loans are expected to have the following characteristics as of
the Cut-off Date (the sum in any column may not equal the total indicated due to
rounding):
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
NUMBER AGGREGATE ORIGINAL AGGREGATE ORIGINAL
RANGE ($) OF LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- -------- ------------------- ------------------
<S> <C> <C> <C>
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
S-14
<PAGE>
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
Total . . . . . . . . . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- -------- ------------------ -----------------
<S> <C> <C> <C>
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . .
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MAXIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MINIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
GROSS MARGIN (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
Total..............................................
</TABLE>
S-17
<PAGE>
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
<TABLE>
<CAPTION>
LOAN PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE FIXED RATE ______________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE ADJUSTABLE RATE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MONTH OF NEXT ADJUSTMENT DATE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total...................................................
</TABLE>
THE INDEX
As of any Adjustment Date, the Index applicable to the determination of the
Mortgage Rate on each Mortgage Loan will be the average of the interbank offered
rates for six-month United States dollar deposits in the London market as
published in THE WALL STREET JOURNAL and as of a date as specified in the
related Mortgage Note. In the event that the Index becomes unavailable or
otherwise unpublished, each Servicer will select a comparable alternative index
over which it has no direct control and which is readily verifiable.
The table below sets forth historical average rates of six-month LIBOR for
the months indicated as made available from FNMA, which rates may differ from
the rates of the Index, which is six-month LIBOR as published in THE WALL STREET
JOURNAL as described above. The table does not purport to be representative of
the subsequent rates of the Index which will be used to determine the Mortgage
Rate on each Mortgage Loan.
YEAR
----
MONTH
- ----- ____ ____ ____ ____ ____ ____
UNDERWRITING STANDARDS; REPRESENTATIONS
The Mortgage Loans will be acquired by the Depositor on the Closing Date
from the __________ SPE, who will have acquired the Mortgage Loans on the
Closing Date from the Seller. The Seller in turn will have acquired the Mortgage
Loans on the Closing Date from _______________, an affiliate of the Depositor
and the Underwriter, will have acquired the Mortgage Loans directly or
indirectly from the Originators. Investors
S-20
<PAGE>
should note that, in the case of the Adjustable Rate ___________ Mortgage Loans,
________________ will have acquired such Mortgage Loans on the Closing Date in
connection with the termination on the Closing Date of the trust funds
underlying two series of mortgage pass-through certificates previously issued by
the Depositor, which trust funds hold the Adjustable Rate ___________ Mortgage
Loans as of the date of this Prospectus Supplement. Such previously issued
mortgage pass-through certificates were entitled (i) ____________ and (ii)
___________. ________________ will have acquired the remainder of the Mortgage
Loans in whole loan purchases directly from __________, __________ and
__________.
The information set forth below with regard to each Originator's
underwriting standards has been provided to the Depositor or compiled from
information provided to the Depositor by such Originator. With respect to the
information regarding each Originator's underwriting standards, none of the
Issuer, the other Originators, the Depositor, the Master Servicer, the Seller,
the ___________ SPE, the Owner Trustee, the Indenture Trustee or any of their
respective affiliates has made or will make any representation as to the
accuracy or completeness of such information.
[Discussion of each Originator's Underwriting Standards used to originate the
Mortgage Loans follows].
REPRESENTATIONS
The Seller will make representations and warranties as of the Closing Date
with respect to the Mortgage Loans, and will be obligated to repurchase any such
Mortgage Loan in respect of which a material breach of the representations and
warranties it has made has occurred (other than those breaches which have been
cured). For a discussion of the representations and warranties made and the
repurchase obligation, see "Mortgage Loan Program--Representations by or on
behalf of the Seller; Repurchases" in the Prospectus.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted as of the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Notes,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the Notes
unless including such mortgage loans would materially alter the characteristics
of the Mortgage Pool as described herein. The Depositor believes that the
information set forth herein will be representative of the characteristics of
the Mortgage Pool as it will be constituted at the time the Notes are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans may vary.
S-21
<PAGE>
YIELD ON THE NOTES
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
payments on the Notes and the yield to maturity of the Notes will be related to
the rate and timing of payments of principal on the Mortgage Loans. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of such Mortgage Loans and by the rate of principal
prepayments thereon (including for this purpose, payments resulting from
refinancings, liquidations of the Mortgage Loans due to defaults, casualties,
condemnations and repurchases, whether optional or required, by the Depositor,
the Seller or the majority holder of the Equity Certificates, as the case may
be). The Mortgage Loans generally may be prepaid by the mortgagors at any time;
however, as described under "The Mortgage Pool" herein, with respect to
approximately _____% of the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, a prepayment may subject the related mortgagor to a Prepayment
Charge. Prepayment Charge obligations generally expire by their terms after a
limited period specified in the related Mortgage Note. The weighted average
month of origination of the Mortgage Loans with Prepayment Charges is ________
____.
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in payments in respect of principal to the holders of the class or classes of
Notes then entitled to receive such payments that otherwise would be distributed
over the remaining terms of the Mortgage Loans. See "Maturity and Prepayment
Considerations" in the Prospectus. Since the rates of payment of principal on
the Mortgage Loans will depend on future events and a variety of factors (as
described more fully herein and in the Prospectus under "Yield Considerations"
and "Maturity and Prepayment Considerations"), no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of any class of Notes may vary from the anticipated yield will depend
upon the degree to which such Notes are purchased at a discount or premium and
the degree to which the timing of payments thereon is sensitive to prepayments
on the Mortgage Loans. Further, an investor should consider, in the case of any
such Note purchased at a discount, the risk that a slower than anticipated rate
of principal payments on the Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of any
such Note purchased at a premium, the risk that a faster than anticipated rate
of principal payments could result in an actual yield to such investor that is
lower than the anticipated yield. In general, the earlier a prepayment of
principal is made on the Mortgage Loans, the greater the effect on the yield to
maturity of the Notes. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of such Notes would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate. Moreover, the timing of prepayments on the Mortgage Loans may
significantly affect the actual yield to maturity on the Notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. In addition, in the case of the Adjustable Rate Mortgage Loans in the
Mortgage Pool, the existence of the applicable Periodic
S-22
<PAGE>
Rate Cap, Maximum Mortgage Rate and Minimum Mortgage Rate may affect the
likelihood of prepayments resulting from refinancings. There can be no certainty
as to the rate of prepayments on the Mortgage Loans during any period or over
the life of the Notes. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
Because principal payments are paid to certain classes of Notes before
other such classes, holders of classes of Notes having a later priority of
payment bear a greater risk of losses (because such Notes will represent an
increasing percentage of the Trust Estate during the period prior to the
commencement of payments of principal thereon) than holders of classes having
earlier priorities for payment of principal. As described under "Description of
the Notes--Principal Payments on the Notes" herein, prior to the Stepdown Date
(as defined herein), all principal payments on the Mortgage Loans will be
allocated to the Class A Notes. Thereafter, as further described herein, subject
to certain delinquency triggers described herein, all principal payments on the
Mortgage Loans will be allocated among all classes of the Notes then outstanding
as described under "Description of the Notes--Principal Payments on the Notes"
herein.
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years. In addition, default rates may be higher for
mortgage loans used to refinance an existing mortgage loan. In the event of a
mortgagor's default on a Mortgage Loan, there can be no assurance that recourse
will be available beyond the specific Mortgaged Property pledged as security for
repayment. See "The Mortgage Pool--Underwriting Standards; Representations"
herein.
SPECIAL YIELD CONSIDERATIONS
The Note Interest Rate for each class of the Notes adjusts monthly based on
One-Month LIBOR as described under "Description of the Notes--Calculation of
One-Month LIBOR" herein, subject to the Maximum Note Interest Rate and the
Available Interest Rate. However, the Mortgage Rates on the Fixed Rate Mortgage
Loans are fixed and will not vary with any index, and the Mortgage Rates on the
Adjustable Rate Mortgage Loans adjust semi-annually (after an initial fixed rate
period in the case of Delayed First Adjustment Mortgage Loans) based on the
Index (which may not move in tandem with One-Month LIBOR), subject to periodic
and lifetime limitations as described herein. Investors should note that
approximately _____% of the Mortgage Loans are ____ year Delayed First
Adjustment Mortgage Loans, approximately ____% of the Mortgage Loans are _____
year Delayed First Adjustment Loans and approximately _____% of the Mortgage
Loans are Fixed Rate Mortgage Loans, in each case by aggregate principal balance
as of the Cut-off Date. The weighted average month of origination of the two
year Delayed First Adjustment Mortgage Loans is _____ ____, and the weighted
average month of origination of the ______ year Delayed First Adjustment
Mortgage Loans is ______ ____. Because of the application of the Maximum Note
Interest Rate and the Available Interest Rate, increases in the Note Interest
Rate on the Notes may be limited for extended periods or indefinitely in a
rising interest rate environment. The interest due on the Mortgage Loans during
any Due Period may not equal the amount of interest that would accrue at
One-Month LIBOR plus the applicable spread on the Notes during the related
Interest Accrual Period. In addition, the Index and One-Month LIBOR may respond
differently to economic and market factors. Thus, it is possible, for example,
that if both One- Month LIBOR and the Index rise during the same period,
One-Month LIBOR may rise more rapidly than the Index or may rise higher than the
Index, potentially resulting in Interest Carry Forward Amounts with respect to
one or more classes of Notes. As a result of the foregoing as well as other
factors such as the prepayment behavior of the Mortgage Pool, relative increases
in One-Month LIBOR or relative decreases in the weighted average of the Mortgage
Rates on the Mortgage Loans (i) could cause the Current Interest Payment Amount
generated by the Mortgage Pool to be less than the aggregate of the Interest
Payment Amounts that would otherwise be payable on the Notes, leading one or
more classes of Notes to incur Interest Carry Forward Amounts, or (ii) could
cause the Maximum Note Interest Rate to apply to one or more classes of Notes.
S-23
<PAGE>
Because the Mortgage Rate for each Adjustable Rate Mortgage Loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
Index and the related Gross Margin, such rates could be higher than prevailing
market interest rates, possibly resulting in an increase in the rate of
prepayments on the Adjustable Rate Mortgage Loans after their adjustments.
As described under "Description of the Notes--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to certain mortgagor delinquencies, to the extent
not covered by P&I Advances. Such delinquencies may affect the yield to
investors on such classes of Subordinate Notes and, even if subsequently cured,
will affect the timing of the receipt of payments by the holders of such classes
of Subordinate Notes. In addition, a larger than expected rate of delinquencies
or losses will affect the rate of principal payments on each class of
Subordinate Notes. See "Description of the Notes--Principal Payments on the
Notes" herein.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of each class
of Notes will be influenced by the rate at which principal on the Mortgage Loans
is paid, which may be in the form of scheduled payments or prepayments
(including repurchases and prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the Mortgage Loans), and the timing thereof.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Assumption") assumes a prepayment rate for the Mortgage Loans of __%
CPR. The Constant Prepayment Rate model ("CPR") assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate or CPR. In generating monthly cash flows, this rate is converted to
an equivalent constant monthly rate. To assume __% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the Mortgage Loans will prepay at __% CPR or any other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the Notes that would be outstanding after each of the
dates shown at various percentages of the Prepayment Assumption and the
corresponding weighted average lives of such Notes. The tables are based on the
following assumptions (the "Modeling Assumptions"): (i) the Mortgage Pool
consists of __ Mortgage Loans with the characteristics set forth below, (ii)
payments on such Notes are received, in cash, on the 25th day of each month,
commencing in _______ ____, (iii) the Mortgage Loans prepay at the percentages
of the Prepayment Assumption indicated, (iv) no defaults or delinquencies occur
in the payment by mortgagors of principal and interest on the Mortgage Loans,
(v) none of the majority holder of the Equity Certificates, the Seller, the
Master Servicer, the Servicers or any other person purchases from the Trust
Estate any Mortgage Loan or redeems the Notes pursuant to any obligation or
option under the Indenture, the Servicing Agreements or any other agreement
except as indicated in footnote two in the tables below, and no partial early
redemption of the Notes occurs with respect to the ___________ Mortgage Loans,
(vi) scheduled monthly payments on the Mortgage Loans are received on the first
day of each month commencing in _______ ____, and are computed prior to giving
effect to any prepayments received in the prior month, (vii) prepayments
representing payment in full of individual Mortgage Loans are received on the
last day of each month commencing in ________ ____, and include 30 days'
interest thereon, (viii) the scheduled monthly payment for each Mortgage Loan is
calculated based on its principal balance, Mortgage Rate, original term to
stated maturity and remaining term to stated maturity such that the Mortgage
Loan will amortize in amounts sufficient to repay the remaining
S-24
<PAGE>
principal balance of such Mortgage Loan by its remaining term to stated
maturity, (ix) the Notes are purchased on ________ __, ____, (x) the Index
remains constant at _____% per annum and the Mortgage Rate on each Adjustable
Rate Mortgage Loan is adjusted on the next Adjustment Date (and on subsequent
Adjustment Dates, if necessary) to equal the Index plus the applicable Gross
Margin, subject to the applicable Periodic Rate Cap, (xi) One-Month LIBOR
remains constant at _____% per annum, (xii) the monthly payment on each
Adjustable Rate Mortgage Loan is adjusted on the Due Date immediately following
the next Adjustment Date (and on subsequent Adjustment Dates, if necessary) to
equal a fully amortizing monthly payment as described in clause (viii) above and
(xiii) the Master Servicing Fee Rate is as set forth in the Assumed Mortgage
Loan Characteristics table below and the Master Servicing Fee is payable
monthly, the Servicing Fee Rate for each Servicer is equal to ____% per annum
and the Servicing Fees are payable monthly, and the Indenture Trustee Fee Rate
is equal to ______% per annum and the Indenture Trustee Fee is paid monthly.
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
REMAINING
PRINCIPAL ORIGINAL TERM MAXIMUM MINIMUM PERIODI MASTER
BALANCE TERM TO TO NEXT MORTGAGE MORTGAGE RATE SERVICING PREPAY
AS OF THE MNORTGAGE MATURITY MATURITY ADJUSTMENT GROSS RATE RATE CAP FEE RATE PENALTY
CUT-OFF DATE RATE(%) (MONTHS) (MONTHS) DATE MARGIN(%) (%) (%) (%) (%) (YES/NO)
------------ ------- -------- -------- ------ --------- ---- ---- --- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the tables. Any such
discrepancy may have an effect upon the percentages of the initial Note Balance
outstanding (and the weighted average lives) of the Notes set forth in the
tables. In addition, since the actual Mortgage Loans included in the Mortgage
Pool will have characteristics that differ from those assumed in preparing the
tables set forth below and since it is not likely the level of the Index or
One-Month LIBOR will remain constant as assumed, the Notes may mature earlier or
later than indicated by the tables. In addition, as described under "Description
of the Notes--Principal Payments on the Notes" herein, the occurrence of the
Stepdown Date or a Trigger Event (each as defined herein) will have the effect
of accelerating or decelerating the amortization of the Notes, affecting the
weighted average lives of the Notes. Based on the foregoing assumptions, the
tables indicate the weighted average lives of the Notes and set forth the
percentages of the initial Note Balance of such Notes that would be outstanding
after each of the Payment Dates shown, at various percentages of the Prepayment
Assumption. Neither the prepayment model used herein nor any other prepayment
model or assumption purports to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans included in the Mortgage Pool.
Variations in the prepayment experience and the balance of the Mortgage Loans
that prepay may increase or decrease the percentages of initial Note Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of all the Mortgage Loans equals
any of the specified percentages of the Prepayment Assumption.
S-25
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A NOTES CLASS M-1 NOTES CLASS M-2 NOTES
------------- --------------- ---------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life
in Years(1).........
Weighted Average
Life
in Years(2).........
</TABLE>
CLASS M-3 NOTES
---------------
0% 15% 28% 35% 45%
-- --- --- --- ---
PAYMENT DATE
- ------------
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life
in Years(1).........
Weighted Average
Life
in Years(2).........
- -----------------
(1) The weighted average life of a Note is determined by (a) multiplying
the amount of each payment of principal by the number of years from the
date of issuance of the Note to the related Payment Date, (b) adding
the results and (c) dividing the sum by the initial Note Balance of the
Notes.
(2) Calculated pursuant to footnote one but assumes the majority holder of
the Equity Certificates exercises its option to redeem the Notes when
the aggregate Note Balance has been reduced to less than 20% of the
initial aggregate Note Balance. See "The Indenture and Owner Trust
Agreement--Redemption" herein.
S-26
<PAGE>
There is no assurance that prepayments of the Mortgage Loans will conform
to any of the levels of the Prepayment Assumption indicated in the tables above,
or to any other level, or that the actual weighted average lives of the Notes
will conform to any of the weighted average lives set forth in the tables above.
Furthermore, the information contained in the tables with respect to the
weighted average lives of the Notes is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or Index level assumptions.
The characteristics of the Mortgage Loans will differ from those assumed in
preparing the tables above. In addition, it is unlikely that any Mortgage Loan
will prepay at any constant percentage until maturity, that all of the Mortgage
Loans will prepay at the same rate or that the level of the Index will remain
constant or at any level for any period of time. The timing of changes in the
rate of prepayments may significantly affect the actual yield to maturity to
investors, even if the average rate of principal prepayments and the level of
the Index is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any Payment Date, the Overcollateralized Amount and the Note Balances
of the Class M-3 Notes and the Class M-2 Notes have been reduced to zero, the
yield to maturity on the Class M-1 Notes will become extremely sensitive to
losses on the Mortgage Loans (and the timing thereof) that are covered by
subordination, because the entire amount of any Realized Losses (to the extent
not covered by Net Monthly Excess Cashflow) will be allocated to the Class M-1
Notes. If on any Payment Date, the Overcollateralized Amount and the Note
Balance of the Class M-3 Notes have been reduced to zero, the yield to maturity
on the Class M-2 Notes will become extremely sensitive to losses on the Mortgage
Loans (and the timing thereof) that are covered by subordination, because the
entire amount of any Realized Losses (to the extent not covered by Net Monthly
Excess Cashflow) will be allocated to the Class M-2 Notes. If on any Payment
Date, the Overcollateralized Amount has been reduced to zero, the yield to
maturity on the Class M-3 Notes will become extremely sensitive to losses on the
Mortgage Loans (and the timing thereof) that are covered by subordination,
because the entire amount of any Realized Losses (to the extent not covered by
Net Monthly Excess Cashflow) will be allocated to the Class M-3 Notes. Once
Realized Losses have been allocated to the Subordinate Notes, such Realized
Losses will not be reinstated thereafter. However, Allocated Realized Loss
Amounts may be paid to the holders of such classes of Notes, after certain
distributions to the holders of the Class A Notes and Subordinate Notes with
lower numerical class designations, but before the Equity Certificates are
entitled to any distributions. See "Description of the
Notes--Overcollateralization Provisions" herein.
Investors in the Subordinate Notes should fully consider the risk that
Realized Losses on the Mortgage Loans could result in the failure of such
investors to fully recover their investments. For additional considerations
relating to the yield on the Subordinate Notes, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the Prospectus.
DESCRIPTION OF THE NOTES
GENERAL
New Century Trust Series ____-__, Asset-Backed Floating Rate Notes, Series
____-__ (the "Notes") will consist of ____ classes of notes, designated as (i)
the Class A Notes and (ii) the Class M-1 Notes, the Class M- 2 Notes and the
Class M-3 Notes (collectively, the "Subordinate Notes"). The Notes will be
issued by [New Century] Trust Series ____-__ (the "Issuer") pursuant to an
indenture, dated as of ________ __, ____ (the "Indenture"), between the Issuer
and the Indenture Trustee. Only the Notes are offered hereby. Trust
S-27
<PAGE>
Certificates, Series ____-__ (the "Equity Certificates") will be issued pursuant
to a trust agreement, dated as of ________ __, ____ (the "Owner Trust
Agreement"), between the Depositor and the Owner Trustee, and will represent the
beneficial ownership interest in the Issuer. The Equity Certificates are not
being offered hereby and will be delivered on the Closing Date to the
____________, as partial consideration for the conveyance of the Mortgage Loans
by ____________ to the Depositor.
Distributions on the Offered Notes will be made on the 25th day of each
month, or, if such day is not a business day, on the next succeeding business
day, beginning in _______ ____ (each, a "Distribution Date").
The Notes represent non-recourse debt obligations of the Issuer secured by
a trust estate (the "Trust Estate"), which consists primarily of a segregated
pool (the "Mortgage Pool") of conventional, one- to four-family, adjustable-rate
and fixed-rate first lien mortgage loans (the "Mortgage Loans") having an
aggregate principal balance as of _________ __, ____ (the "Cut-off Date") of
approximately $___________, subject to a permitted variance as described herein
under "The Mortgage Pool". Proceeds of the Trust Estate will be the sole source
of payments on the Notes. The Issuer is not expected to have any significant
assets other than the Trust Estate pledged as collateral to secure the Notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the Class
M-3 Notes will have an aggregate initial Note Balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus [5]%. The Note Interest Rates on the Notes are
adjustable, subject to the Maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each Payment Date as described under "--Note
Interest Rate" herein. The "Final Maturity Date" of the Notes is the Payment
Date occurring in
- ------- ----.
The Notes will be issued, maintained and transferred on the book-entry
records of DTC and its Participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess thereof.
The Notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Depositor, the "Clearing Agency"), except as
provided below. The Depositor has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No person acquiring an interest in any class of the
Notes (a "Note Owner") will be entitled to receive a note representing such
person's interest, except as set forth below under "--Definitive Notes". Unless
and until Definitive Notes are issued under the limited circumstances described
herein, all references to actions by Noteholders with respect to the Notes shall
refer to actions taken by DTC upon instructions from its Participants (as
defined below), and all references herein to payments, notices, reports and
statements to Noteholders with respect to the Notes shall refer to payments,
notices, reports and statements to DTC or CEDE, as the registered holder of the
Notes, for payment to Note Owners in accordance with DTC procedures. See
"--Registration" and "--Definitive Notes" herein.
Any Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee. No service charge will be imposed for any registration
of transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
All payments to holders of the Notes, other than the final payment on any
class of Notes, will be made by or on behalf of the Indenture Trustee to the
persons in whose names such Notes are registered at the close of business on
each Record Date. The "Record Date" for each Payment Date (i) with respect to
the Notes (other than any Definitive Notes) will be the close of business on the
business day immediately preceding such Payment Date or (ii) with respect to the
Definitive Notes will be the close of business on the last business day of the
month preceding the month in which such Payment Date occurs. Such payments will
be made either (a)
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<PAGE>
by check mailed to the address of each such Noteholder as it appears in the Note
Register or (b) upon written request to the Indenture Trustee at least five
business days prior to the relevant Record Date by any holder of Notes having an
aggregate initial Note Balance that is in excess of the lesser of (i) $5,000,000
or (ii) two-thirds of the initial aggregate Note Balance of such class of Notes,
by wire transfer in immediately available funds to the account of such
Noteholder specified in the request. The final payment on any class of Notes
will be made in like manner, but only upon presentment and surrender of such
Notes at the corporate trust office of the Indenture Trustee or such other
location specified in the notice to Noteholders of such final payment.
REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entries, thereby eliminating the need for physical movement of
notes. Participants include securities brokers and dealers (including
_____________), banks, trust companies and clearing corporations. Indirect
access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Note Owners that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in, the
Notes may do so only through Participants and Indirect Participants. In
addition, Note Owners will receive all payments of principal of and interest on
the Notes from the Indenture Trustee through DTC and DTC Participants. The
Indenture Trustee will forward payments to DTC in same day funds and DTC will
forward such payments to Participants in next day funds settled through the New
York Clearing House. Each Participant will be responsible for disbursing such
payments to Indirect Participants or to Note Owners. Unless and until Definitive
Notes are issued, it is anticipated that the only holder of the Notes will be
CEDE, as nominee of DTC. Note Owners will not be recognized by the Indenture
Trustee as Noteholders, as such term is used in the Indenture, and Note Owners
will be permitted to exercise the rights of Noteholders only indirectly through
DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Notes among Participants and to receive and transmit payments of principal of,
and interest on, the Notes. Participants and Indirect Participants with which
Note Owners have accounts with respect to the Notes similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Note Owners. Accordingly, although Note Owners will not possess
Definitive Notes, the Rules provide a mechanism by which Note Owners through
their Participants and Indirect Participants will receive payments and will be
able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and on behalf of certain banks, the ability of a
Note Owner to pledge Notes to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to such Notes, may be limited due
to the absence of physical notes for the Notes. In addition, under a book-entry
format, Note Owners may experience delays in their receipt of payments since
payment will be made by the Indenture Trustee to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a Noteholder
under the Indenture only at the direction of one or more Participants to whose
DTC account the Notes are credited. Cedel or the Euroclear Operator (as defined
herein), as the case may be, will take any other action permitted to be taken by
a
S-29
<PAGE>
Noteholder under the Indenture on behalf of a Cedel Participant (as defined
herein) or Euroclear Participant (as defined herein) only in accordance with its
relevant rules and procedures and subject to the ability of the Relevant
Depositary (as defined herein) to effect such actions on its behalf through DTC.
Additionally, under the Rules, DTC will take such actions with respect to
specified Voting Rights only at the direction of and on behalf of Participants
whose holdings of Notes evidence such specified Voting Rights. DTC may take
conflicting actions with respect to Voting Rights to the extent that
Participants whose holdings of Notes evidence such Voting Rights, authorize
divergent action.
DTC management is aware that some computer applications, systems and
similar items for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed its Participants and other members of the
financial community (collectively, the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Issuer, the Originators, the Depositor, the Master Servicer, the
Seller, the ________ SPE, the Owner Trustee, the Indenture Trustee and their
respective affiliates will have no liability for any actions taken by DTC or its
nominee or Cedel or Euroclear, including, without limitation, actions for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Notes held by CEDE, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Depositor advises the Indenture
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Clearing Agency with respect to the Notes and the
Depositor is unable to locate a qualified successor, (ii) the Depositor, at its
option, advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default (as defined herein), Note Owners representing in the aggregate not less
than 51% of the Voting Rights of the Notes advise the Indenture Trustee and DTC
through Participants, in writing, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Note Owners' best
interest.
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<PAGE>
Upon the occurrence of any event described in the immediately preceding
paragraph, the Indenture Trustee is required to notify all Note Owners through
Participants of the availability of Definitive Notes. Upon surrender by DTC of
the definitive notes representing the Notes and receipt of instructions for re-
registration, the Indenture Trustee will reissue the Notes as Definitive Notes
issued in the respective principal amounts owned by individual Note Owners, and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as Noteholders under the Indenture. Such Definitive Notes will be issued
in minimum denominations of $10,000, except that any beneficial ownership
represented by a Note in an amount less than $10,000 immediately prior to the
issuance of a Definitive Note shall be issued in a minimum denomination equal to
the amount represented by such Note.
BOOK-ENTRY FACILITIES
Note Owners may elect to hold their interests in the Notes through DTC in
the United States or through Cedel or Euroclear in Europe, if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of such class and will
initially be registered in the name of Cede, the nominee of DTC. Cedel and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries").
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear
Participants or Cedel Participants on such business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant or Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel
S-31
<PAGE>
Participants, thereby eliminating the need for physical movement of notes.
Transactions may be settled in Cedel in any of 28 currencies, including United
States dollars. Cedel provides to its Cedel Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 32 currencies, including United States
dollars. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific notes to specific securities clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Payments with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such payments will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. See Annex I
hereto.
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NOTE INTEREST RATES
The Note Interest Rate on the Class A Notes will be a rate per annum equal
to the lesser of (i) One-Month LIBOR plus ____%, in the case of each Payment
Date through and including the Payment Date on which the aggregate Note Balance
is reduced to less than __% of the aggregate initial Note Balance, or One-Month
LIBOR plus ____%, in the case of any Payment Date thereafter, (ii) the Available
Interest Rate for such Payment Date and (iii) _____% per annum (the "Maximum
Note Interest Rate").
The Note Interest Rate on the Class M-1 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-2 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-3 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus _____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
See "--Calculation of One-Month LIBOR" herein.
With respect to any class of Notes and any Payment Date, the lesser of the
rate described for such class in clause (i) above and the Maximum Note Interest
Rate is referred to herein as the "Note Accrual Rate" or such class and such
Payment Date. The "Available Interest Rate" for any Payment Date is a rate per
annum equal to the fraction, expressed as a percentage, the numerator of which
is (i) the Current Interest Payment Amount for such Payment Date, and the
denominator of which is (ii) the aggregate Note Balance of the Notes immediately
prior to such Payment Date multiplied by the actual number of days elapsed in
the related Interest Accrual Period and divided by 360.
The Note Interest Rate and the Note Accrual Rate for the Notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be
obtained by telephoning the Indenture Trustee at __________.
INTEREST PAYMENTS ON THE NOTES
To the extent of the Current Interest Payment Amount, in the priorities set
forth below, the holders of each class of Notes will be entitled to receive on
each Payment Date interest payments in an amount equal to the Interest Payment
Amount for such class. On each Payment Date, the Current Interest Payment Amount
will be distributed in the following order of priority:
FIRST, to the holders of the Class A Notes, the Interest Payment Amount for
such Notes;
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SECOND, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to the
holders of the Class M-1 Notes, the Interest Payment Amount for such Notes;
THIRD, to the extent of the Current Interest Payment Amount remaining after
payment of the Interest Payment Amounts for the Class A Notes and the Class
M-1 Notes, to the holders of the Class M-2 Notes, the Interest Payment
Amount for such Notes; and
FOURTH, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes, the
Class M-1 Notes and the Class M-2 Notes, to the holders of the Class M-3
Notes, the Interest Payment Amount for such Notes.
The "Current Interest Payment Amount" for any Payment Date is an amount
equal to interest collections or advances on the Mortgage Loans during the
related Due Period (net of the Master Servicing Fee, the Servicing Fees and the
Indenture Trustee Fee).
The "Interest Payment Amount" for the Notes of any class on any Payment
Date is equal to interest accrued during the related Interest Accrual Period on
the Note Balance of such Notes immediately prior to such Payment Date at the
then-applicable Note Interest Rate for such class.
With respect to any Payment Date, to the extent that the aggregate of the
Interest Payment Amounts for the Notes is limited by the Current Interest
Payment Amount for the related Due Period, the holders of certain classes of
Notes may receive an Interest Payment Amount calculated at the Available
Interest Rate rather than at the applicable Note Accrual Rate for such classes
and such Payment Date. With respect to any class of Notes and any Payment Date,
any shortfall in payment of interest represented by the excess, if any, of the
Interest Payment Amount that would be payable on such class at the applicable
Note Accrual Rate over the Interest Payment Amount actually paid on such class
at the Available Interest Rate, together with any such shortfall in payment of
interest remaining unpaid from previous Payment Dates plus interest accrued
thereon at the related Note Accrual Rate, is referred to as an "Interest Carry
Forward Amount". The Interest Carry Forward Amount, if any, for any class of the
Notes for any Payment Date is payable to the extent of available funds remaining
after certain other payments on the Notes on such Payment Date, but before any
payments on the Equity Certificates on such Payment Date. See
"--Overcollateralization Provisions" herein.
The "Interest Accrual Period" for any Payment Date is the period commencing
on the Payment Date of the month immediately preceding the month in which such
Payment Date occurs (or, in the case of the first period, commencing on the
Closing Date) and ending on the day preceding such Payment Date. All payments of
interest on the Notes will be based on a 360-day year and the actual number of
days in the applicable Interest Accrual Period.
The Note Balance of a Note outstanding at any time represents the then
maximum amount that the holder thereof is entitled to receive as payments
allocable to principal from the cash flow on the Mortgage Loans and the other
assets in the Trust Estate. The "Note Balance" of any class of Notes as of any
date of determination is equal to the initial Note Balance thereof reduced by
the aggregate of (a) all amounts allocable to principal previously distributed
with respect to such Note and (b) any reductions in the Note Balance thereof
deemed to have occurred in connection with allocations of Realized Losses in the
manner described herein.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the second business
day preceding such Interest Accrual Period, (each such date, an "Interest
Determination Date"), the Indenture Trustee will determine One-
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Month LIBOR for the next Interest Accrual Period. "One Month LIBOR" means, as of
any Interest Determination Date, the London interbank offered rate for one-month
U.S. dollar deposits which appears on Telerate Page 3750 (as defined herein) as
of 11:00 a.m. (London time) on such date. If such rate does not appear on
Telerate Page 3750, the rate for that day will be determined on the basis of the
offered rates of the Reference Banks (as defined herein) for one-month U.S.
dollar deposits, as of 11:00 a.m. (London time) on such Interest Determination
Date. The Indenture Trustee will request the principal London office of each of
the Reference Banks to provide a quotation of its rate. If on such Interest
Determination Date two or more Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of such offered quotations (rounded upwards if necessary to the nearest
whole multiple of 0.0625%). If on such Interest Determination Date fewer than
two Reference Banks provide such offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the higher of (x) One- Month LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate (as defined herein).
As used in this section, "business day" means a day on which banks are open
for dealing in foreign currency and exchange in London and New York City;
"Telerate Page 3750" means the display page currently so designated on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace that
page on that service for the purpose of displaying comparable rates or prices);
"Reference Banks" means leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) which have been
designated as such by the Indenture Trustee and (iii) not controlling,
controlled by, or under common control with, the Depositor or the Issuer; and
"Reserve Interest Rate" shall be the rate per annum that the Indenture Trustee
determines to be either (i) the arithmetic mean (rounded upwards if necessary to
the nearest whole multiple of 0.0625%) of the one-month U.S. dollar lending
rates which New York City banks selected by the Indenture Trustee are quoting on
the relevant Interest Determination Date to the principal London offices of
leading banks in the London interbank market or, (ii) in the event that the
Indenture Trustee can determine no such arithmetic mean, the lowest one-month
U.S. dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Notes for the related Interest Accrual Period shall
(in the absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each Payment Date, the Principal Payment Amount will be distributed to
the holders of the Notes then entitled to payments of principal. The "Principal
Payment Amount" for any Payment Date, other than the Final Maturity Date and the
Payment Date immediately following the acceleration of the Notes due to an Event
of Default, will be the lesser of:
(a) the excess of the Available Payment Amount over the aggregate of
the Interest Payment Amounts for the Notes; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments on
the Mortgage Loans due during the related Due Period, whether or
not received on or prior to the related Determination Date;
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(ii) the principal portion of all proceeds received during the
related Prepayment Period in respect of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) as contemplated in the
Servicing Agreements;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received during
the related Prepayment Period, to the extent applied as recoveries
of principal on the Mortgage Loans;
(iv) the principal portion of any Realized Losses incurred or
deemed to have been incurred on any Mortgage Loans in the calendar
month preceding such Payment Date to the extent covered by Net
Monthly Excess Cashflow (as defined herein) for such Payment Date;
and
(v) the amount of any Overcollateralization Increase Amount
(as defined herein) for such Payment Date;
MINUS
(vi) the amount of any Overcollateralization Reduction Amount
(as defined herein) for such Payment Date.
The "Principal Payment Amount" for the Final Maturity Date or the Payment Date
immediately following the acceleration of the Notes due to an Event of Default
will equal the amount necessary to reduce the Note Balance of any Notes
outstanding to zero. In no event will the Principal Payment Amount with respect
to any Payment Date be (x) less than zero or (y) greater than the
then-outstanding aggregate Note Balance of the Notes. The Principal Payment
Amount for the first Payment Date will include approximately $_________
collected by the Servicers in respect of prepayments on the Mortgage Loans
during the _________ ____ Prepayment Period.
On each Payment Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, the Principal Payment Amount shall be distributed:
first, to the Class A Notes, until the Note Balance thereof has been reduced to
zero; second, to the Class M-1 Notes, until the Note Balance thereof has been
reduced to zero; third, to the Class M-2 Notes, until the Note Balance thereof
has been reduced to zero; and fourth, to the Class M-3 Notes, until the Note
Balance thereof has been reduced to zero.
On each Payment Date (a) on or after the Stepdown Date and (b) on which a
Trigger Event is not in effect, the holders of the Class A Notes and the
Subordinate Notes shall be entitled to receive payments in respect of principal
to the extent of the Principal Payment Amount in the following amounts and order
of priority:
FIRST, the lesser of (x) the Principal Payment Amount and (y) the Class A
Principal Payment Amount, shall be distributed to the holders of the Class
A Notes, until the Note Balance thereof has been reduced to zero;
SECOND, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the amount distributed to the holders of the Class A Notes
pursuant to clause FIRST above and (y) the Class M-1 Principal Payment
Amount, shall be distributed to the holders of the Class M-1 Notes, until
the Note Balance thereof has been reduced to zero;
THIRD, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class A
Notes pursuant to clause FIRST above and to the holders of the Class M-1
Notes pursuant to clause SECOND above and (y) the Class M-2 Principal
Payment Amount, shall be distributed to the holders of the Class M-2 Notes,
until the Note Balance thereof has been reduced to zero; and
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FOURTH, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class A
Notes pursuant to clause FIRST above, to the holders of the Class M-1 Notes
pursuant to clause SECOND above and to the holders of the Class M-2 Notes
pursuant to clause THIRD above and (y) the Class M-3 Principal Payment
Amount, shall be distributed to the holders of the Class M-3 Notes, until
the Note Balance thereof has been reduced to zero.
On the Final Maturity Date or the Payment Date immediately following the
acceleration of the Notes due to any Event of Default principal will be payable
on each class of Notes in an amount equal to the Note Balance thereof on such
Payment Date. On the Final Maturity Date or the Payment Date immediately
following the acceleration of the Notes due to any Event of Default, amounts in
respect of accrued interest, Interest Carry Forward Amounts and Allocated
Realized Loss Amounts will also be payable on each class of Notes in the
priorities set forth in the Indenture. There can be no assurance, however, that
sufficient funds will be available on any such date to retire the Note Balances
and pay such other amounts.
The allocation of payments in respect of principal to the Class A Notes on
each Payment Date (a) prior to the Stepdown Date or (b) on which a Trigger Event
has occurred, will have the effect of accelerating the amortization of the Class
A Notes while, in the absence of Realized Losses, increasing the respective
percentage interest in the principal balance of the Mortgage Loans evidenced by
the Subordinate Notes and the Overcollateralized Amount. Increasing the
respective percentage interest in the Trust Estate of the Subordinate Notes and
the Overcollateralized Amount relative to that of the Class A Notes is intended
to preserve the availability of the subordination provided by the Subordinate
Notes and the Overcollateralized Amount.
The "Available Payment Amount" for any Payment Date is equal to the sum,
net of amounts reimbursable therefrom to the Master Servicer, the Servicers, the
Indenture Trustee or the Owner Trustee, of (i) the aggregate amount of scheduled
monthly payments on the Mortgage Loans due on the related Due Date and received
on or prior to the related Determination Date, after deduction of the Master
Servicing Fee, the Servicing Fees and the Indenture Trustee Fee, (ii) certain
unscheduled payments in respect of the Mortgage Loans, including prepayments,
insurance proceeds, liquidation proceeds and proceeds from repurchases of and
substitutions for the Mortgage Loans occurring during the preceding calendar
month and (iii) all P&I Advances with respect to the Mortgage Loans received for
such Payment Date. The holders of the Equity Certificates will be entitled to
all Prepayment Charges received on the Mortgage Loans and such amounts will not
be available for distribution on the Notes.
The "Class A Principal Payment Amount" for any Payment Date on or after the
Stepdown Date and on which a Trigger Event is not in effect, is an amount equal
to the excess of (x) the Note Balance of the Class A Notes immediately prior to
such Payment Date over (y) the lesser of (A) the product of (i) _____% and (ii)
the aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the Mortgage Loans
as of the last day of the related Due Period minus
$---------.
The "Class M-1 Principal Payment Amount" for any Payment Date on or after
the Stepdown Date and on which a Trigger Event is not in effect, is an amount
equal to the excess of (x) the sum of (i) the Note Balance of the Class A Notes
(after taking into account the payment of the Class A Principal Payment Amount
on such Payment Date) and (ii) the Note Balance of the Class M-1 Notes
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the Mortgage Loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the Mortgage Loans as of the last day of the related Due Period minus
$_________.
The "Class M-2 Principal Payment Amount" for any Payment Date on or after
the Stepdown Date and on which a Trigger Event is not in effect, is an amount
equal to the excess of (x) the sum of (i) the Note Balance
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of the Class A Notes (after taking into account the payment of the Class A
Principal Payment Amount on such Payment Date), (ii) the Note Balance of the
Class M-1 Notes (after taking into account the payment of the Class M-1
Principal Payment Amount on such Payment Date) and (iii) the Note Balance of the
Class M-2 Notes immediately prior to such Payment Date over (y) the lesser of
(A) the product of (i) _____% and (ii) the aggregate principal balance of the
Mortgage Loans as of the last day of the related Due Period and (B) the
aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period minus
$----------.
The "Class M-3 Principal Payment Amount" for any Payment Date on or after
the Stepdown Date and on which a Trigger Event is not in effect, is an amount
equal to the excess of (x) the sum of (i) the Note Balance of the Class A Notes
(after taking into account the payment of the Class A Principal Payment Amount
on such Payment Date), (ii) the Note Balance of the Class M-1 Notes (after
taking into account the payment of the Class M-1 Principal Payment Amount on
such Payment Date), (iii) the Note Balance of the Class M-2 Notes (after taking
into account the payment of the Class M-2 Principal Payment Amount on such date)
and (iv) the Note Balance of the Class M-3 Notes immediately prior to such
Payment Date over (y) the lesser of (A) the product of (i) _____% and (ii) the
aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the Mortgage Loans
as of the last day of the related Due Period minus $__________.
The "Stepdown Date" for any Payment Date is the later to occur of (x) the
Payment Date occurring in _______ ____ and (y) the first Payment Date on which
the Credit Enhancement Percentage (calculated for this purpose only after taking
into account payments of principal on the Mortgage Loans, but prior to any
payment of the Principal Payment Amount to the Notes then entitled to payments
of principal on such Payment Date) is
greater than or equal to _____%.
With respect to any Payment Date, a "Trigger Event" is in effect if the
percentage obtained by dividing (x) the principal amount of Mortgage Loans
delinquent 60 days or more by (y) the aggregate principal balance of the
Mortgage Loans, in each case, as of the last day of the previous calendar month,
exceeds the lesser of (i)
_____% of the Credit Enhancement Percentage and (ii) ______%.
The "Credit Enhancement Percentage" for any Payment Date is the percentage
obtained by dividing (x) the sum of the Overcollateralized Amount and the
aggregate Note Balance of the Subordinate Notes by (y) the aggregate principal
balance of the Mortgage Loans, calculated after taking into account payments of
principal on the Mortgage Loans and payment of the Principal Payment Amount to
the Notes on such Payment Date.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the holders of the Notes
consists of subordination, as described below, and overcollateralization, as
described under "--Overcollateralization Provisions" herein.
The rights of the holders of the Subordinate Notes and the Equity
Certificates to receive payments will be subordinated, to the extent described
herein, to the rights of the holders of the Class A Notes. This subordination is
intended to enhance the likelihood of regular receipt by the holders of the
Class A Notes of the full amount of interest and principal to which they are
entitled and to afford such holders protection against
Realized Losses.
The protection afforded to the holders of the Class A Notes by means of the
subordination of the Subordinate Notes and the Equity Certificates will be
accomplished by (i) the preferential right of the holders of the Class A Notes
to receive on any Payment Date, prior to payment on the Subordinate Notes and
the Equity Certificates, payments in respect of interest and principal, subject
to available funds, and (ii) if
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necessary, the right of the holders of the Class A Notes to receive future
payments of amounts that would otherwise be payable to the holders of the
Subordinate Notes and the Equity Certificates.
In addition, the rights of the holders of Subordinate Notes with lower
numerical class designations will be senior to the rights of holders of
Subordinate Notes with higher numerical class designations, and the rights of
the holders of all of the Subordinate Notes to receive payments in respect of
the Mortgage Loans will be senior to the rights of the holders of the Equity
Certificates, in each case to the extent described herein. This subordination is
intended to enhance the likelihood of regular receipt by the holders of
Subordinate Notes with lower numerical class designations relative to the
holders of Subordinate Notes with higher numerical class designations (and by
the holders of all of the Subordinate Notes relative to the holders of the
Equity Certificates) of the full amount of interest and principal to which they
are entitled and to afford such holders protection against Realized Losses, as
described under "--Allocation of Realized Losses" herein.
OVERCOLLATERALIZATION PROVISIONS
The weighted average Mortgage Rate for the Mortgage Loans (adjusted to
reflect the Master Servicing Fee, the Servicing Fees and the Indenture Trustee
Fee payable from interest received or advanced on the Mortgage Loans) is
generally expected to be higher than the weighted average of the Note Interest
Rates on the Notes, thus generating excess interest collections which, in the
absence of Realized Losses, will not be necessary to fund interest payments on
the Notes. The Indenture requires that, on each Payment Date, the Net Monthly
Excess Cashflow, if any, be applied on such Payment Date as an accelerated
payment of principal on class or classes of Notes then entitled to receive
payments in respect of principal, but only to the limited extent hereafter
described. The "Net Monthly Excess Cashflow" for any Payment Date is equal to
the sum of (a) any Overcollateralization Reduction Amount and (b) the excess of
(x) the Available Payment Amount for such Payment Date over (y) the sum for such
Payment Date of the aggregate of the Interest Payment Amounts payable to the
holders of the Notes and the sum of the amounts described in clauses (b)(i)
through (iii) of the definition of Principal Payment Amount.
With respect to any Payment Date, any Net Monthly Excess Cashflow (or, in
the case of clause FIRST below, the Net Monthly Excess Cashflow exclusive of any
Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of Notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have been
incurred on the Mortgage Loans;
SECOND, to the holders of the class or classes of Notes then entitled to
receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
THIRD, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
FOURTH, to the holders of the Class M-1 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
FIFTH, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss Amount for such Notes;
SIXTH, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
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SEVENTH, to the holders of the Class M-2 Notes, in an amount equal to the
Allocated Realized Loss Amount for such Notes;
EIGHTH, to the holders of the Class M-3 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
NINTH, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for such Notes; and
TENTH, to the holders of the Equity Certificates as provided in the
Indenture.
With respect to any Payment Date, the excess, if any, of (a) the aggregate
principal balance of the Mortgage Loans immediately following such Payment Date
over (b) the Note Balance of the Notes, after taking into account the payment of
the amounts described in clauses (b)(i) through (iv) of the definition of
Principal Payment Amount on such Payment Date, is the "Overcollateralized
Amount" for the Notes as of such Payment Date. As of the Closing Date, the
aggregate principal balance of the Mortgage Loans as of the Cutoff Date will
exceed the aggregate Note Balance of the Notes by an amount equal to
approximately $_________. Such amount represents approximately ____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, which
is the initial amount of overcollateralization required to be provided by the
Mortgage Pool under the Indenture. Under the Indenture, the Overcollateralized
Amount is required to be maintained at the "Required Overcollateralized Amount".
In the event that Realized Losses are incurred on the Mortgage Loans, such
Realized Losses may result in an overcollateralization deficiency since such
Realized Losses will reduce the principal balance of the Mortgage Loans without
a corresponding reduction to the aggregate Note Balance of the Notes. In such
event, the Indenture requires the payment from Net Monthly Excess Cashflow,
subject to available funds, of an amount equal to any such overcollateralization
deficiency, which shall constitute a principal payment on the Notes in reduction
of the Note Balances thereof. This has the effect of accelerating the
amortization of the Notes relative to the amortization of the Mortgage Loans,
and of increasing the Overcollateralized Amount. With respect to the Notes and
any Payment Date, any amount of Net Monthly Excess Cashflow actually applied as
an accelerated payment of principal to the extent the Required
Overcollateralized Amount exceeds the Overcollateralized Amount as of such
Payment Date is the "Overcollateralization Increase Amount".
On and after the Stepdown Date and provided that a Trigger Event is not in
effect, the Required Overcollateralized Amount may be permitted to decrease
("step down") below the initial $_________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the Mortgage Loans (after giving effect to principal payments to be
distributed on such Payment Date), subject to a floor of $_________. In the
event that the Required Overcollateralized Amount is permitted to step down on
any Payment Date, the Indenture provides that a portion of the principal which
would otherwise be distributed to the holders of the Notes on such Payment Date
shall be distributed to the holders of the Equity Certificates, subject to the
priorities set forth above. With respect to each such Payment Date, the
Principal Payment Amount will be reduced by the amount by which the
Overcollateralized Amount exceeds the Required Overcollateralized Amount (the
"Overcollateralization Reduction Amount") after taking into account all other
payments to be made on such Payment Date, which amount shall be distributed as
Net Monthly Excess Cashflow pursuant to the priorities set forth above. This has
the effect of decelerating the amortization of the Notes relative to the
amortization of the Mortgage Loans, and of reducing the Overcollateralized
Amount. However, if on any Payment Date a Trigger Event is in effect, the
Required Overcollateralized Amount will not be permitted to step down on such
Payment Date.
ALLOCATION OF LOSSES; SUBORDINATION
S-40
<PAGE>
With respect to any defaulted Mortgage Loan that is finally liquidated
through foreclosure sale, disposition of the related Mortgaged Property (if
acquired by deed in lieu of foreclosure) or otherwise, the amount of loss
realized, if any, will equal the portion of the unpaid principal balance
remaining, if any, plus interest thereon through the last day of the month in
which such Mortgage Loan was finally liquidated, after application of all
amounts recovered (net of amounts reimbursable to the Servicers for P&I
Advances, servicing advances and Servicing Fees) towards interest and principal
owing on the Mortgage Loan. Such amount of loss realized and any Bankruptcy
Losses are referred to herein as "Realized Losses".
Any Realized Loss on the Mortgage Loans will be allocated on any Payment
Date, first, to Net Monthly Excess Cashflow, second, to the Overcollateralized
Amount, third, to the Class M-3 Notes, fourth, to the Class M-2 Notes, and
fifth, to the Class M-1 Notes. With respect to any class of Subordinate Notes
and any Payment Date, the sum of (i) any such Realized Loss allocated to such
class of Subordinate Notes on such Payment Date and (ii) any Allocated Realized
Loss Amount for such class remaining unpaid from previous Payment Dates plus
accrued interest thereon at the Note Accrual Rate for such class is referred to
as an "Allocated Realized Loss Amount". The Indenture does not permit the
allocation of Realized Losses to the Class A Notes. Investors in the Class A
Notes should note that although Realized Losses cannot be allocated to the such
Notes, under certain loss scenarios there will not be enough principal and
interest collected on the Mortgage Loans to pay the Class A Notes all interest
and principal amounts to which they are then entitled.
Once Realized Losses have been allocated to the Subordinate Notes, such
Realized Losses will not be reinstated thereafter. However, Allocated Realized
Loss Amounts may be paid to the holders of such classes of Notes, after certain
distributions to the holders of the Class A Notes and Subordinate Notes with
lower numerical class designations, but before the Equity Certificates are
entitled to any distributions.
Any allocation of a Realized Loss to a Note will be made by reducing the
Note Balance thereof by the amount so allocated on the Payment Date in the month
following the calendar month in which such Realized Loss was incurred.
Notwithstanding anything to the contrary described herein, in no event will the
Note Balance of any Note be reduced more than once in respect of any particular
amount both (i) allocable to such Notes in respect of Realized Losses and (ii)
payable as principal to the holder of such Notes from Net Monthly Excess
Cashflow.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service Reduction.
With respect to any Mortgage Loan, a "Deficient Valuation" is a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy Code. A
"Debt Service Reduction" is any reduction in the amount which a mortgagor is
obligated to pay on a monthly basis with respect to a Mortgage Loan as a result
of any proceeding initiated under the United States Bankruptcy Code, other than
a reduction attributable to a Deficient Valuation.
P&I ADVANCES
Subject to the following limitations, each Servicer will be obligated to
advance or cause to be advanced on or before each Payment Date its own funds, or
funds in the Certificate Account that are not included in the Available Payment
Amount for such Payment Date, in an amount equal to the aggregate of all
payments of principal and interest, net of the related Servicing Fee, that were
due during the related Due Period on the Mortgage Loans serviced by such
Servicer and that were delinquent on the related Determination Date, plus
certain amounts representing assumed payments not covered by any current net
income on the Mortgaged Properties acquired by foreclosure or deed in lieu of
foreclosure (any such advance, a "P&I Advance").
S-41
<PAGE>
P&I Advances are required to be made only to the extent they are deemed by
the related Servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making such P&I Advances is to
maintain a regular cash flow to the Noteholders, rather than to guarantee or
insure against losses. The Servicers will not be required to make any P&I
Advances with respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to bankruptcy proceedings or the application of the Relief
Act.
All P&I Advances will be reimbursable to the related Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which such unreimbursed P&I Advance was made. In addition, any P&I
Advances previously made in respect of any Mortgage Loan that are deemed by the
related Servicer to be nonrecoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the related Servicer out
of any funds in the Certificate Account prior to the payments on the Notes. In
the event that any Servicer fails in its obligation to make any required
advance, the Master Servicer will be obligated to make such advance, and in the
event that the Master Servicer fails in its obligation to make such advance, the
Indenture Trustee will be obligated to make such advance, in each such case to
the extent required in the related Servicing Agreement.
THE ISSUER
[New Century] Trust Series ____-__ is a business trust formed under the
laws of the State of Delaware pursuant to the Owner Trust Agreement, dated as of
________ __, ____, between the Depositor and the Owner Trustee for the
transactions described in this Prospectus Supplement. The Owner Trust Agreement
constitutes the "governing instrument" under the laws of the State of Delaware
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring and holding the Mortgage Loans and the
proceeds therefrom, (ii) issuing the Notes and the Equity Certificates, (iii)
making payments on the Notes and the Equity Certificates and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith. The Issuer is not
expected to have any significant assets other than the Trust Estate pledged as
collateral to secure the Notes. The assets of the Issuer will consist of the
Mortgage Loans pledged to secure the Notes. The Issuer's principal offices are
in __________, ________, in care of ________________, as Owner Trustee.
THE SELLER
__________________ (the "Seller"), in its capacity as mortgage loan seller,
will sell the Mortgage Loans to the ___________ pursuant to a Mortgage Loan
Purchase Agreement, dated as of _________ __, ____, between the Seller and the
__________ SPE.
THE __________ SPE
________________ (the "_________ SPE"), a special purpose entity that is an
affiliate of the Issuer and the Seller, will convey the Mortgage Loans to the
Depositor pursuant to an Ownership Transfer Agreement, dated as of ________ __,
____, between the _______ SPE and the Depositor.
S-42
<PAGE>
THE OWNER TRUSTEE
_________________ is the Owner Trustee under the Owner Trust Agreement. The
Owner Trustee is a _________ banking corporation and its principal offices are
located in _____________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Noteholders under
the Owner Trust Agreement under any circumstances, except for the Owner
Trustee's own misconduct, gross negligence, bad faith or grossly negligent
failure to act or in the case of the inaccuracy of certain representations made
by the Owner Trustee in the Owner Trust Agreement. All persons into which the
Owner Trustee may be merged or with which it may be consolidated or any person
resulting from such merger or consolidation shall be the successor of the Owner
Trustee under the Owner Trust Agreement.
The principal compensation to be paid to the Owner Trustee in respect of
its obligations under the Owner Trust Agreement will have been paid by or on
behalf of the Issuer on or prior to the Closing Date.
THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
Indenture Trustee for the Notes pursuant to the Indenture. The Indenture
Trustee's offices for notices under the Indenture are located at
______________________________ and its telephone number is ______________.
The principal compensation to be paid to the Indenture Trustee in respect
of its obligations under the Indenture (the "Indenture Trustee Fee") will be
equal to (i) accrued interest at ________% per annum (the "Indenture Trustee Fee
Rate") on the Scheduled Principal Balance of each Mortgage Loan, payable
monthly, and (ii) any interest or other income earned on funds held in the
Certificate Account (to the extent not payable as compensation to the related
Servicer) as provided in the Indenture. The "Scheduled Principal Balance" of any
Mortgage Loan as of any date of determination is equal to the principal balance
thereof as of the Cut-off Date (after application of all scheduled principal
payments due on or before the Cut-off Date, whether or not received), reduced by
(x) the principal portion of all monthly payments due on or before the date of
determination, whether or not received, (y) all amounts allocable to unscheduled
principal that were received prior to the calendar month in which the date of
determination occurs, and (z) any Bankruptcy Loss occurring out of a Deficient
Valuation that was incurred prior to the calendar month in which the date of
determination occurs.
The Indenture will provide that the Indenture Trustee may withdraw funds
from the Certificate Account (i) to reimburse itself for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection and
including reasonable compensation and expenses, disbursements and advances of
its agents, counsel, accountants and experts and (ii) to reimburse the Owner
Trustee for all reasonable out-of pocket expenses incurred or made by the Owner
Trustee for all services rendered by the Owner Trustee it in the Owner Trustee's
execution of the trust created under the Owner Trust Agreement and in the
exercise and performance of any of the Owner Trustee's powers and duties under
the Owner Trust Agreement. Under the Indenture, the Issuer (from the assets of
the Trust Estate) shall indemnify the Indenture Trustee against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by
the Indenture Trustee in connection with the administration of the Trust Estate
and the performance of the Indenture Trustee's duties
S-43
<PAGE>
hereunder. The Issuer is not required, however, to reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
THE SERVICING AGREEMENTS
The following summary describes certain terms of the Servicing Agreements,
dated as of __________ __, ____ (the "Servicing Agreements"), among the Issuer,
the Indenture Trustee, the Master Servicer and the related Servicer. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Servicing Agreements. Whenever particular
sections or defined terms of the Servicing Agreements are referred to, such
sections or defined terms are thereby incorporated herein by reference. The
Depositor will provide to a prospective or actual Noteholder without charge, on
written request, a copy (without exhibits) of the Servicing Agreements. Requests
should be addressed to the Secretary, [New Century Entity], 18400 Von Karman,
Irvine, California 92612.
ORIGINATORS AND SERVICERS
[ORIGINATOR]
The information set forth in the following paragraphs has been provided by
_______________. None of the Issuer, the other Originators, the Depositor, the
Master Servicer, the Seller, the _________ SPE, the Owner Trustee, the Indenture
Trustee or any of their respective affiliates has made or will make any
representation as to the accuracy or completeness of such information. The
following table summarizes ____________'s one- to four-family residential
mortgage loan origination and sales activity for the periods shown below. Sales
activity may include sales of mortgage loans purchased by __________ from other
loan originators.
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-----------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Originations.........
Sales................
</TABLE>
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family and multifamily) loans
serviced by ___________ that were originated or purchased by _________:
S-44
<PAGE>
<TABLE>
<CAPTION>
AT
JUNE
AT DECEMBER 31, 30,
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance...............................
Number of Loans.........................
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding Principal
Balance.......................
Delinquency as a Percentage
of Number of Loans............
61-90 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
91 Days or More
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
Total Delinquencies:
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
FORECLOSURES PENDING(1)
Principal Balance...............
Number of Loans.................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.......................
Foreclosures Pending as
a Percentage of Number of
Loans...........................
NET LOAN LOSSES for the
Period(2).............................
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance.....................
</TABLE>
S-45
<PAGE>
- --------------------
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of residential loans serviced by ________ have been
conveyed to REMIC trust funds.
[ORIGINATOR]
The information set forth in the following paragraphs has been provided by
______________. None of the Issuer, the other Originators, the Depositor, the
Master Servicer, the Seller, the _________ SPE, the Owner Trustee, the Indenture
Trustee or any of their respective affiliates has made or will make any
representation as to the accuracy or completeness of such information.
[ORIGINATOR]
The information set forth in the following paragraphs has been provided by
________________ ("____________"). None of the Issuer, the other Originators,
the Depositor, the Master Servicer, the Seller, the __________ SPE, the Owner
Trustee, the Indenture Trustee or any of their respective affiliates has made or
will make any representation as to the accuracy or completeness of such
information. Pursuant to the related Servicing Agreement, ____________ will
serve as servicer for the Mortgage Loans sold indirectly by it to the Depositor
(in such capacity, with respect to such Mortgage Loans, the "Servicer").
Notwithstanding the foregoing, the Master Servicer and ___________ have advised
the Depositor that with respect to a portion of the Mortgage Loans initially to
be serviced by _____________, the servicing thereof is expected to be
transferred to the Master Servicer, whereupon the Master Servicer will act in
the capacity as "Servicer" under the applicable Servicing Agreement to the
extent of such Mortgage Loans. Such portion of the Mortgage Loans that is
expected to be subject to such servicing transfer represents approximately
_____% of the Mortgage Loans, by aggregate principal balance as of the Cut-off
Date.
The table below sets forth the overall delinquency experience on
residential one-to-four-family mortgage loans for non-conforming credits which
are currently serviced by ____________. No mortgage loan is considered
delinquent for purposes of the table until a payment is 30 days past due on a
contractual basis. It should be noted that ______________ commenced its
servicing activities for these types of non-conforming mortgage loans in ____
and that its portfolio consists of mortgage loans that were originated during
the periods from ____ to ____ in accordance with the underwriting standards it
had established or other underwriting guidelines that it determined were
substantially similar. The information in the table below is not intended to
indicate or predict the expected delinquency experience on past, current or
future pools of mortgage loans for which __________ _ is the primary servicer.
S-46
<PAGE>
---------------
<TABLE>
<CAPTION>
NON-CONFORMING MORTGAGE LOAN PORTFOLIO EXPERIENCE
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------- ----------------
1995 1996 1997 JUNE 30, 1998
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Total principal balance (at period end).........
Average portfolio principal balance(1)..........
DELINQUENCIES (at period end)(2) 30-59 Days:
Principal balance.............................
Percent(3)....................................
60-89 Days:
Principal balance.............................
Percent(3)....................................
90 Days or More:
Principal balance.............................
Percent(3)....................................
Total Delinquencies:
Principal balance.............................
Percent(3)....................................
FORECLOSURES
Principal balance.............................
Percent(3)....................................
REO (at period end).............................
Net gains/(losses) on liquidated loans..........
Percentage of net gains/(losses) on
liquidated loans (based on average
portfolio principal balance)..................
</TABLE>
- -------------
(1) Calculated by summing the actual outstanding principal balances at the end
of each month and dividing the total by the number of months in the
applicable period.
(2) Delinquency information does not include loans in foreclosure or REO.
(3) Percentages are expressed based upon the total outstanding principal
balance at the end of the indicated period.
(4) Annualized.
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the mortgage portfolios set forth in the foregoing tables. The statistics shown
above represent the delinquency experience for the indicated mortgage servicing
portfolios only for the periods presented, whereas the aggregate delinquency
experience on the Mortgage Loans comprising the Mortgage Pool will depend on the
results obtained over the life of the Mortgage Pool. The mortgage servicing
portfolios set forth above include mortgage loans that were originated using a
variety of different underwriting procedures and standards which may have been
more selective. They include mortgage loans with a variety of payment and other
characteristics (including geographic location) which are not necessarily
representative of the payment and other characteristics of the Mortgage Loans
comprising the Mortgage Pool. It should be noted that if the residential real
estate market should experience an overall decline in property values, the
actual rates of delinquencies and foreclosures could be higher than those
previously experienced by ______________. In addition, adverse economic
conditions may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Mortgage Loans and, accordingly, the actual rates
of delinquencies and foreclosures with respect to the Mortgage Pool.
S-47
<PAGE>
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to each Servicer in respect of its
servicing activities for the Notes will be equal to accrued interest at the
Servicing Fee Rate of ____% per annum with respect to each Mortgage Loan
serviced by it for each calendar month on the same principal balance on which
interest on such Mortgage Loan accrues for such calendar month (the "Servicing
Fee"). As additional servicing compensation, each Servicer is entitled to retain
all assumption fees and late payment charges in respect of Mortgage Loans
serviced by it, to the extent collected from mortgagors, together with any
interest or other income earned on funds held in the Certificate Account (to the
extent not payable as compensation to the Indenture Trustee) and any escrow
accounts in respect of Mortgage Loans serviced by it.
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is not charged interest on the amount of such prepayment for the month
in which such prepayment is made. Each Servicer is obligated to pay from its own
funds ("Compensating Interest") only those interest shortfalls attributable to
full and partial prepayments by the mortgagors on the Mortgage Loans serviced by
it ("Prepayment Interest Shortfall"), but only to the extent of its aggregate
Servicing Fee for the related Due Period. Each Servicer is obligated to pay
certain insurance premiums and certain ongoing expenses associated with the
Mortgage Pool in respect of Mortgage Loans serviced by it and incurred by such
Servicer in connection with its responsibilities under the related Servicing
Agreement and is entitled to reimbursement therefor as provided in such
Servicing Agreement. With respect to the Mortgage Loans serviced by _________,
_________ will also be entitled to reimbursement of servicing advances and
principal and interest advances made by it as servicer of such Mortgage Loans
prior to the Cut-off Date. See "Description of the Securities--Retained
Interest; Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding expenses payable by the Servicers.
SALE OF DEFAULTED MORTGAGE LOANS
If consent to the operation of the provisions described below shall have
been given by the related Servicer (unless the Directing Holder, as defined
below, is the Seller or an affiliate thereof, in which case such consent shall
not be required), then with respect to any Mortgage Loan that is delinquent in
excess of the number of days provided in the related Servicing Agreement, (i)
the holder of a majority in Percentage Interest of the Equity Certificates (the
"Directing Holder") may direct the related Servicer to commence foreclosure and
(ii) prior to commencement of foreclosure of any Mortgage Loan, such Servicer
will notify the Directing Holder of such proposed foreclosure in order to permit
the Directing Holder the right to instruct such Servicer to delay the proposed
foreclosure. In the case of the exercise by the Directing Holder of the right to
direct the related Servicer pursuant to either clause (i) or clause (ii) above,
the Directing Holder will provide to such Servicer an appraisal of the related
Mortgaged Property (the "Loan Appraisal"). Within two business days of
instructing the related Servicer to commence or delay foreclosure, the Directing
Holder will deposit in a segregated account maintained with the related Servicer
(the related "Collateral Account") for the benefit of the Noteholders an amount
equal to ___% of the Valuation (as defined below) of the related Mortgage Loan
plus three months' interest at the related Mortgage Rate. While foreclosure is
delayed pursuant to the direction of the Directing Holder, the Directing Holder
may direct the related Servicer to proceed with foreclosure at anytime.
With respect to any election by the Directing Holder to delay foreclosure,
the "Valuation" of any Mortgage Loan shall be the greater of the outstanding
principal balance thereof and the fair market value thereof as provided in the
related Loan Appraisal. With respect to any election by the Directing Holder to
commence foreclosure, the "Valuation" of any Mortgage Loan shall equal the
outstanding principal balance thereof.
Upon the liquidation of the related Mortgage Loan or the disposition of the
related Mortgaged Property in accordance with the requirements set forth in the
related Servicing Agreement, the related Servicer will
S-48
<PAGE>
calculate the amount, if any, by which the Valuation exceeds the actual sales
price obtained for the related Mortgage Loan or the Mortgaged Property, as the
case may be, and the related Servicer will withdraw the amount of such excess
from the Collateral Account and deposit such amount into the related Certificate
Account. If the amount realized pursuant to the above-described procedures
exceeds the Valuation, the related Servicer will deposit immediately upon
realization from such proceeds such excess into the Certificate Account. The
related Servicer shall apply all such amounts as additional liquidation proceeds
pursuant to the related Servicing Agreement. If any election to delay
foreclosure is to be extended for a period in excess of three months from the
Directing Holder's direction to the related Servicer to delay foreclosure, the
Directing Holder will be required to deposit in the Collateral Account in
advance the amount of each additional month's interest at the related Mortgage
Rate. If the above-described procedures do not result in the Mortgage Loan being
brought current within six months of the Directing Holder's direction to the
related Servicer to delay foreclosure, the Directing Holder will be required to
either (i) purchase the Mortgage Loan for a purchase price equal to the fair
market value thereof as shown on the Loan Appraisal or (ii) allow the related
Servicer to proceed with the commencement of foreclosure. Should the Directing
Holder elect to purchase the Mortgage Loan, the related Servicer will first
apply funds on deposit in the related Collateral Account towards such purchase
price; any shortage will be paid by the Directing Holder and any excess will be
returned to it.
With respect to any Mortgage Loan as to which the Directing Holder has
directed the related Servicer to commence foreclosure or to delay foreclosure,
such Servicer may withdraw from the Collateral Account from time to time amounts
necessary to reimburse such Servicer for all P&I Advances and servicing advances
in accordance with the related Servicing Agreement. In the event that the
related Mortgage Loan is brought current, the amounts so withdrawn from the
Collateral Account by the related Servicer as reimbursement for P&I Advances or
servicing advances shall be redeposited therein by the related Servicer and such
Servicer shall be reimbursed as provided in the related Servicing Agreement.
Following foreclosure, liquidation, disposition or the bringing current of the
related Mortgage Loan, as applicable, all amounts remaining in the Collateral
Account will be released to the Directing Holder. In the event that amounts on
deposit in the Collateral Account are insufficient to cover the withdrawals that
the related Servicer is entitled to make for P&I Advances, servicing advances or
for deposit into the Certificate Account, the Directing Holder will be obligated
to pay such amounts to the related Servicer for deposit into the Collateral
Account. The Directing Holder may direct that amounts on deposit in the
Collateral Account be invested in Permitted Investments. Interest or other
income earned on funds in the Collateral Account will be paid to the Directing
Holder and the amount of any loss on such funds will be immediately deposited
into the Collateral Account by the Directing Holder when realized. The Directing
Holder will grant to the related Servicer for the benefit of the Noteholders a
security interest in the Collateral Account, all amounts deposited therein or
invested in Permitted Investments, and all proceeds of the foregoing.
Notwithstanding the foregoing, the provisions described above shall not be
operative in the case of the Mortgage Loans serviced by ___________.
SERVICER EVENTS OF DEFAULT
In addition to those Events of Default (as defined in the Prospectus)
pertaining to the servicing of the Mortgage Loans and described under
"Description of the Securities--Events of Default" in the Prospectus, upon the
occurrence of certain loss triggers with respect to the Mortgage Loans, the
Servicer may be removed as servicer of the Mortgage Loans serviced by it in
accordance with the terms of the related Servicing Agreement. If any Servicer is
removed in connection with an Event of Default applicable to such Servicer under
the terms of the related Servicing Agreement, the Master Servicer will become
the successor Servicer of the Mortgage Loans serviced by such terminated
Servicer.
THE MASTER SERVICER
S-49
<PAGE>
__________________ (the "Master Servicer") is the Master Servicer under
each of the Servicing Agreements. The Master Servicer is a ____________
corporation. The Master Servicer's principal offices are located in
_______________.
The principal compensation to be paid to the Master Servicer in respect of
its obligations under the Servicing Agreements (the "Master Servicing Fee") will
be equal to accrued interest at the Master Servicing Fee Rate on the Scheduled
Principal Balance of each Mortgage Loan, payable monthly. The "Master Servicing
Fee Rate" is equal to (i) ____% per annum in the case of each ____-____ Mortgage
Loan and (ii) ____% per annum in the case of each other Mortgage Loan.
THE INDENTURE AND OWNER TRUST AGREEMENT
The following summary describes certain terms of the Indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Owner Trust Agreement and Indenture.
Whenever particular defined terms of the Indenture are referred to, such defined
terms are thereby incorporated herein by reference. The Depositor will provide
to a prospective or actual Noteholder without charge, on written request, a copy
(without exhibits) of the Indenture and the Owner Trust Agreement. Requests
should be addressed to the Secretary, [New Century Entity], 18400 Von Karman,
Irvine, California 92612.
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which is
filed as an exhibit to the Registration Statement. A Current Report on Form 8-K
relating to the Notes containing a copy of the Indenture and the Owner Trust
Agreement as executed will be filed by the Depositor with the Securities and
Exchange Commission within fifteen days of the initial issuance of the Notes.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust Estate, the terms and conditions of
the Indenture and the Owner Trust Agreement and the Notes. The Notes will be
transferable and exchangeable at the corporate trust offices of the Indenture
Trustee, located in _______________.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the Notes are issued, the Seller will convey each
Mortgage Loan to the __________ SPE, who in turn will convey each such Mortgage
Loan to the Depositor, who in turn will convey each Mortgage Loan to the Issuer.
At the time of issuance of the Notes, the Issuer will pledge all of its
right, title and interest in and to the Mortgage Loans, including all principal
and interest due on each such Mortgage Loan after the Cut-off Dates, without
recourse, to the Indenture Trustee pursuant to the Indenture as collateral for
the Notes; provided, however, that the Seller will reserve and retain all its
right, title and interest in and to principal and interest due on such Mortgage
Loan on or prior to the Cut-off Date (whether or not received on or prior to the
Cut-off Date), and to prepayments received prior to the Cut-off Date. The
Indenture Trustee, concurrently with such assignment, will authenticate and
deliver the Notes at the direction of the Issuer in exchange for, among other
things, the Mortgage Loans.
The Indenture will require the Issuer to deliver to the Indenture Trustee
or to a custodian with respect to each Mortgage Loan (i) the mortgage note
endorsed without recourse to the Indenture Trustee, (ii) the original mortgage
with evidence of recording indicated thereon and (iii) an assignment of the
mortgage in recordable form to the Indenture Trustee. Such assignments of
Mortgage Loans are required to be recorded by or on behalf of the Seller, at the
expense of the Seller, in the appropriate offices for real property records.
EVENTS OF DEFAULT
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Notwithstanding the Prospectus, an "Event of Default" under the Indenture
with respect to the Notes is as follows: (a) the failure of the Issuer to pay
the Interest Payment Amount, the Principal Payment Amount or any
Overcollateralization Increase Amount on any Payment Date, in each case to the
extent that funds are available on such Payment Date to make such payments,
which continues unremedied for a period of five days; (b) the failure by the
Issuer on the Final Maturity Date to reduce the Note Balances of any Notes then
outstanding to zero; (c) a default in the observance or performance of any
covenant or agreement of the Issuer in the Indenture and the continuation of any
such default for a period of thirty days after notice to the Issuer by the
Indenture Trustee or by the holders of at least 25% of the Voting Rights of the
Notes; (d) any representation or warranty made by the Issuer in the Indenture or
in any certificate or other writing delivered pursuant thereto having been
incorrect in any material respect as of the time made, and the circumstance in
respect of which such representation or warranty being incorrect not having been
cured within thirty days after notice thereof is given to the Issuer by the
Indenture Trustee or by the holders of at least 25% of the Voting Rights of the
Notes; or (e) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer.
Notwithstanding, the Prospectus, if an Event of Default occurs and is
continuing, the Indenture Trustee or the holders of a majority of the Voting
Rights may declare the Note Balance of all the Notes to be due and payable
immediately. Such declaration may, under certain circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding Voting Rights.
If following an Event of Default, the Notes have been declared to be due
and payable, the Indenture Trustee may, in its discretion, notwithstanding such
acceleration, elect to maintain possession of the collateral securing the Notes
and to continue to apply payments on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes as they would
have become due if there had not been such a declaration. In addition, the
Indenture Trustee may not sell or otherwise liquidate the collateral securing
the Notes following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding Voting Rights consent to such sale, (b) the proceeds
of such sale or liquidation are sufficient to pay in full the principal of and
accrued interest, due and unpaid at their respective Note Accrual Rates, on the
outstanding Notes at the date of such sale or (c) the Indenture Trustee
determines that such collateral would not be sufficient on an ongoing basis to
make all payments on such Notes as such payments would have become due if such
Notes had not been declared due and payable, and the Indenture Trustee obtains
the consent of the holders of 66 2/3% of the then aggregate outstanding Voting
Rights.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for payments to the Noteholders would be less than
would otherwise be the case. However, the Indenture Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
In the event the principal of the Notes is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount that is unamortized.
No Noteholder will have any right under the Indenture to institute any
proceeding with respect to such Indenture unless (a) such holder previously has
given to the Indenture Trustee written notice of default and the continuance
thereof, (b) the holders of Notes of any class evidencing not less than 25% of
the aggregate outstanding Note Balance constituting such class (i) have made
written request upon the Indenture Trustee to institute such proceeding in its
own name as Indenture Trustee thereunder and (ii) have offered to the Indenture
Trustee reasonable indemnity, (c) the Indenture Trustee has neglected or refused
to institute any such proceeding for 60 days after receipt of such request and
indemnity and (d) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60 day period by the holders of a
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majority of the Note Balance of such class. However, the Indenture Trustee will
be under no obligation to exercise any of the trusts or powers vested in it by
the Indenture or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Notes covered by such Indenture, unless such holders have offered to the
Indenture Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated among the holders
of the Class A Notes (or, after the Class A Notes have been paid in full, the
class of Subordinate Notes then outstanding with the lowest numerical class
designation) in proportion to the then outstanding Note Balances of their
respective Notes.
OPTIONAL REDEMPTION
The circumstances under which the obligations created by the Indenture will
terminate in respect of the Notes are described in "Description of the
Securities--Termination" in the Prospectus.
At its option, the majority holder of the Equity Certificates may redeem
the Notes, in whole but not in part, on any Payment Date on or after the Payment
Date on which the aggregate Note Balance is reduced to less than 20% of the
aggregate initial Note Balance. Any such redemption will be paid in cash at a
price equal to the sum of (w) 100% of the aggregate Note Balance then
outstanding, (x) the aggregate of any Allocated Realized Loss Amounts on the
Notes remaining unpaid immediately prior to such Payment Date, (y) the aggregate
of the Interest Payment Amounts on the Notes for such Payment Date and (z) the
aggregate of any Interest Carry Forward Amounts for such Payment Date. Upon any
such redemption, the remaining assets in the Trust Estate shall be released from
the lien of the Indenture.
In addition, with respect to the ____-___ Mortgage Loans, the majority
holder of the Equity Certificates may at its option obtain the release of such
portion of the Mortgage Pool (together with any properties acquired in respect
thereof) remaining in the Trust Estate from the lien of the Indenture, and in
connection therewith effect a partial redemption of the Notes, on any Payment
Date on or after the Payment Date following the Due Period in which the
aggregate principal balance of the ____-___ Mortgage Loans (and properties
acquired in respect thereof) remaining in the Trust Estate is reduced to less
than $_____________. The ____-___ Mortgage Loans have an aggregate principal
balance of approximately $__________ as of the Cut-off Date. Any such redemption
shall be paid in cash at a price generally equal to the sum of (x) 100% of the
then-outstanding principal balance of each such Mortgage Loan plus accrued
interest thereon at their respective Mortgage Rates through the last day of the
calendar month preceding the month in which such redemption occurs, (y) the then
fair market value of each such property and (z) the amount of any servicing
advances reimbursable to the related Servicer in respect of such Mortgage Loans.
For purposes of payments on the Notes and Equity Certificates on the Payment
Date of such redemption, such redemption price shall be applied by the Indenture
Trustee as a final liquidation of each of such Mortgage Loans and properties.
The redemption price relating to any such properties, at their then fair market
value, may result in a shortfall in payment to, and/or the allocation of
Realized Losses to, one or more classes of the Notes. Furthermore, the Master
Servicing Fee, the Servicing Fee and the Indenture Trustee Fee, as well as
expenses and reimbursements permitted to be paid from the assets of the Trust
Estate under the Indenture or the applicable Servicing Agreement, in each case
to the extent payable or reimbursable with respect to such Mortgage Loans, will
be payable from the amount received in respect of such redemption price and
therefore, as provided in the Indenture, will be excluded from the Available
Payment Amount for the Payment Date of such redemption.
In no event will the trust created by the Indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the Indenture. See "Description of the Securities--Termination" in the
Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
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Upon the issuance of the Notes, Thacher Proffitt & Wood, counsel to the
Depositor, will deliver its opinion generally to the effect that based on the
application of existing law and assuming compliance with the Owner Trust
Agreement, for federal income tax purposes, (a) the Notes will be characterized
as indebtedness and not as representing an ownership interest in the Trust
Estate or an equity interest in the Issuer or the Depositor and (b) the Issuer
will not be (i) classified as an association taxable as a corporation for
federal income tax purposes or (ii) a "publicly traded partnership" as defined
in Treasury Regulation Section 1.7704. The Notes will not be treated as having
been issued with "original issue discount" (as defined in the Prospectus). The
prepayment assumption that will be used in determining the rate of amortization
of market discount and premium, if any, for federal income tax purposes will be
based on the assumption that the Mortgage Loans will prepay at a rate equal to
__% CPR. No representation is made that the Mortgage Loans will prepay at that
rate or at any other rate. See "Federal Income Tax Consequences" in the
Prospectus.
Taxable mortgage pool ("TMP") rules enacted as part of the Tax Reform Act
of 1986 treat certain arrangements in which debt obligations are secured or
backed by real estate mortgage loans as taxable corporations. An entity (or a
portion thereof) will be characterized as a TMP if (i) substantially all of its
assets are debt obligations and more than 50% of such debt obligations consist
of real estate mortgage loans or interests therein, (ii) the entity is the
obligor under debt obligations with two or more maturities, and (iii) payments
on the debt obligations referred to in clause (ii) bear a relationship to
payments on the debt obligations referred to in clause (i). Furthermore, a group
of assets held by an entity can be treated as a separate TMP if the assets are
expected to produce significant cashflow that will support one or more of the
entity's issues of debt obligation.
It is anticipated that the Issuer will be characterized as a TMP for
federal income tax purposes. In general, a TMP is treated as a "separate"
corporation not includible with any other corporation in a consolidated income
tax return, and is subject to corporate income taxation.
The Notes will not be treated as assets described in Section 7701(a)(19)(C)
of the Code or "real estate assets" under Section 856(c)(4)(A) of the Code. In
addition, interest on the Notes will not be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code.
The Notes will also not be treated as "qualified mortgages" under Section
860G(a)(3)(C) of the Code.
Prospective investors in the Notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated ________ __, ____ (the "Underwriting Agreement"), the Depositor
has agreed to sell, and ________________ (the "Underwriter") has agreed to
purchase the Notes. The Underwriter is obligated to purchase all Notes of the
respective classes offered hereby if it purchases any. The Underwriter is an
affiliate of the Depositor.
The Notes will be purchased from the Depositor by the Underwriter and will
be offered by the Underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Notes, before deducting
expenses payable by the Depositor, will be approximately ___% of the aggregate
initial Note Balance of the Notes. In connection with the purchase and sale of
the Notes, the Underwriter may be deemed to have received compensation from the
Depositor in the form of underwriting discounts.
The Offered Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer
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without notice. It is expected that delivery of the Offered Notes will be made
through the facilities of DTC on or about the Closing Date.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There can be no assurance that a secondary market for the Notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the Notes will be the monthly
statements discussed in the Prospectus under "Description of the
Securities--Reports to Securityholders", which will include information as to
the outstanding principal balance of the Notes and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the Notes will be available through any other source. In
addition, the Depositor is not aware of any source through which price
information about the Notes will be generally available on an ongoing basis. The
limited nature of such information regarding the Notes may adversely affect the
liquidity of the Notes, even if a secondary market for the Notes becomes
available.
LEGAL OPINIONS
Certain legal matters relating to the Notes will be passed upon for the
Depositor and the Underwriter by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition of the issuance of the Notes that the Class A Notes be
rated "AAA" by _____________ ("____") and "AAA" by _______________ ("_____"),
that the Class M-1 Notes be rated at least "AA" by _____ and at least "AA" by
____, that the Class M-2 Notes be rated at least "A" by ____ and at least "A" by
_____ and that the Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the Notes address the likelihood
of the receipt by Noteholders of all payments to which such Noteholders are
entitled, other than payments of interest to the extent of any Interest Carry
Forward Amounts. The rating process addresses structural and legal aspects
associated with the Notes, including the nature of the underlying mortgage
loans. The ratings assigned to the Notes do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which the rate of such prepayments will differ from that originally
anticipated. The ratings do not address the possibility that Noteholders might
suffer a lower than anticipated yield due to non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Notes are subsequently lowered for any reason, no person or entity is obligated
to provide any additional credit support or credit enhancement with respect to
the Notes.
The Depositor has not requested that any rating agency rate the Notes other
than as stated above. However, there can be no assurance as to whether any other
rating agency will rate the Notes, or, if it does, what rating would be assigned
by any such other rating agency. A rating on the Notes by another rating agency,
if assigned at all, may be lower than the ratings assigned to the Notes as
stated above.
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LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") for so long as they are rated not lower than the second highest
rating category by a Rating Agency (as defined in the Prospectus) and, as such,
will be legal investments for certain entities to the extent provided in SMMEA.
SMMEA, however, provides for state limitation on the authority of such entities
to invest in "mortgage related securities", provided that such restricting
legislation was enacted prior to October 3, 1991. Certain states have enacted
legislation which overrides the preemption provisions of SMMEA. The Class M-2
Notes and the Class M-3 Notes will not constitute "mortgage related securities"
for purposes of SMMEA.
The Depositor makes no representations as to the proper characterization of
the Notes for legal investment or other purposes, or as to the ability of
particular investors to purchase the Notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Notes. Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the Notes constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts of insurance
companies in which such plans or arrangements are invested (all of which are
hereinafter referred to as a "Plan") and on persons who are fiduciaries with
respect to such Plans. ERISA and the Code prohibit certain transactions
involving the assets of a Plan and "disqualified persons" (within the meaning of
the Code; "Disqualified Persons") and "parties in interest" (within the meaning
of ERISA; "Parties in Interest") who have certain specified relationships to the
Plan. Accordingly, prior to making an investment in the Notes, investing Plans
should determine whether the Issuer, the Depositor, the Seller, the Trust
Estate, the Underwriter, any other underwriter, the Owner Trustee, the Indenture
Trustee, the Master Servicer, the Servicers, any other servicer, any
administrator, any provider of credit support, or any insurer or any of their
affiliates is a Party in Interest or Disqualified Person with respect to such
Plan and, if so, whether such transaction is subject to one or more statutory or
administrative exemptions. Additionally, an investment of the assets of a Plan
in securities may cause the assets included in the Trust Estate to be deemed
"Plan Assets" of such Plan, and any person with certain specified relationships
to the Trust Estate to be deemed a Party in Interest or Disqualified Person. The
U.S. Department of Labor (the "DOL") has promulgated regulations at 29 C.F.R.
Section 2510.3-101 (the "Plan Asset Regulations") defining the term "Plan
Assets" for purposes of applying the general fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code. Under the Plan Asset Regulations, generally, when a Plan acquires an
"equity interest" in another entity (such as the Trust Estate), the underlying
assets of that entity may be considered to be Plan Assets. The Plan Asset
Regulations provide that the term "equity interest" means any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no "substantial equity features." Although
not entirely free from doubt, it is believed that, as of the date hereof, the
Notes will be treated as debt obligations without significant equity features
for the purposes of the Plan Asset Regulations. Because of the factual nature of
certain of the above-described provisions of ERISA, the Code and the Plan Asset
Regulations, Plans or persons investing Plan Assets should carefully consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or the Code. Any Plan fiduciary which proposes to cause
a Plan
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to acquire any of the Notes should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Notes.
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$___________ (APPROXIMATE)
NEW CENTURY MORTGAGE SECURITIES, INC.
DEPOSITOR
ASSET-BACKED FLOATING RATE NOTES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
MASTER SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED HEREBY IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR COVER PAGES.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Offered Certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until _______ __,
____.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND MAY BE DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered New Century
Mortgage Securities, Inc., New Century Trust Series ____-__, Asset-Backed
Floating Rate Notes, Series ____-__, Class A, Class M-1, Class M-2 and Class M-3
Notes (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be traceable as home
market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear will
be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their Relevant Depositary
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practices. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on
the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset-backed notes issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC, SELLER AND CEDEL OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant
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Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date, on
the basis of the actual number of days in such accrual period and a year assumed
to consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the Relevant Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (I.E.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their account one day later. As an alternative, if
Cedel or Euroclear has extended a line of credit to them, Cedel Participants or
Euroclear Participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, Cedel
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
the result will depend on each Cedel Participant's or Euroclear Participant's
particular cost of funds. Since the settlement is taking place during New York
business hours, DTC Participants can employ their usual procedures for crediting
Global Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist to 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically
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fail on the sale side unless affirmative action is taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate: Exemption for
Non-U.S. Persons (Form W-8). Beneficial Holders of Global Securities that are
Non-U.S. Persons (as defined below) can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons residing in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Holdership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by Noteholders or their agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the laws of, the
United States or any political subdivision thereof (except, in the case of a
partnership, to the extent provided in regulations), or an estate whose income
is subject to United States federal income tax regardless of its source, or a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
Persons have the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
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advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
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Information contained herein is subject to completion or amendment. Offers to
buy these securities may not be accepted without the delivery of a final
prospectus supplement and prospectus. This prospectus supplement and the
accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities, in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
SUBJECT TO COMPLETION, DATED APRIL 21, 1999
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
(ISSUABLE IN SERIES)
NEW CENTURY MORTGAGE SECURITIES, INC.
Depositor
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
The securities will represent obligations of a trust fund only and will not
represent ownership interests in or obligations of any other entity.
This prospectus may be used to offer and sell the securities only if accompanied
by a prospectus supplement.
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THE SECURITIES:
New Century, as depositor, will sell the securities, which may be in the form of
mortgage pass-through certificates or mortgage-backed notes. Each issue of
securities will have its own series designation and will evidence either:
o the ownership of certain trust fund assets, or
o debt obligations secured by certain trust fund assets.
Each series of securities will include one or more classes. Each class of
securities of any series will represent the right, which right may be senior to
the rights of one or more of the other classes of the securities, to receive a
specified portion of future payments of principal and interest on the assets in
the related trust fund. A series may include one or more classes of securities
entitled to principal distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no principal distributions. A series may include two or more classes
of securities that differ as to the timing, sequential order or amount of
distributions of principal or interest or both. The related prospectus
supplement will specify each of these features.
THE TRUST FUND AND ITS ASSETS
As specified in the related prospectus supplement, the assets of a trust fund
will primarily include any combination of various types of one- to four-family
residential first and junior lien mortgage loans, home equity lines of credit,
cooperative apartment loans or manufactured housing conditional sales contracts
and installment loan agreements, or beneficial interests in these types of
assets,
The assets of the trust fund for a series of securities may also include pool
insurance policies, letters of credit, reserve funds or other types of credit
support, or any combination of credit support, and currency or interest rate
exchange agreements and other financial assets, or any combination of financial
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the securities may be made through one or more different methods,
including through underwriters as described in "Methods of Distribution" in this
prospectus and in the related prospectus supplement.
The date of this Prospectus is .
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TABLE OF CONTENTS
IMPORTANT NOTICE ABOUT INFORMATION
IN THIS PROSPECTUS
AND EACH ACCOMPANYING
PROSPECTUS SUPPLEMENT..................................................3
RISK FACTORS...................................................................4
Federal Tax Considerations Regarding REMIC
Residual Certificates..........................................11
THE TRUST FUNDS...............................................................14
The Mortgage Loans....................................................14
Pre-Funding Account...................................................19
USE OF PROCEEDS...............................................................20
YIELD CONSIDERATIONS..........................................................20
MATURITY AND PREPAYMENT
CONSIDERATIONS........................................................21
MORTGAGE LOAN PROGRAM.........................................................23
Underwriting Standards................................................23
Qualifications of Originators and Mortgage Loan
Sellers........................................................24
Representations by or on Behalf of Mortgage
Loan Sellers; Repurchases......................................25
DESCRIPTION OF THE SECURITIES.................................................27
General...............................................................27
Assignment of Trust Fund Assets.......................................29
Deposits to Certificate Account.......................................32
Payments on Mortgage Loans............................................33
Distributions.........................................................35
Available Distribution Amount.........................................35
Interest on the Securities............................................36
Principal of the Securities...........................................37
Allocation of Losses..................................................37
Advances in Respect of Delinquencies..................................38
Reports to Securityholders............................................39
Collection and Other Servicing Procedures.............................40
Sub-Servicing.........................................................42
Realization Upon Defaulted Mortgage Loans.............................42
Retained Interest; Servicing or Administration
Compensation and Payment of Expenses...........................44
Evidence as to Compliance.............................................45
Certain Matters Regarding the Master Servicer
and the Depositor..............................................45
Events of Default and Rights Upon Events of
Default........................................................46
Amendment.............................................................49
Termination...........................................................50
Optional Purchase of Defaulted Mortgage Loans.........................51
Duties of the Trustee.................................................51
The Trustee...........................................................51
DESCRIPTION OF CREDIT SUPPORT.................................................52
Subordination.........................................................52
Letter of Credit......................................................53
Mortgage Pool Insurance Policy........................................55
Special Hazard Insurance Policy.......................................57
Bankruptcy Bond.......................................................58
Financial Guarantee Insurance.........................................59
Reserve Fund..........................................................59
Cash Flow Agreements..................................................59
DESCRIPTION OF PRIMARY INSURANCE
POLICIES..............................................................59
Primary Mortgage Insurance Policies...................................59
Primary Hazard Insurance Policies.....................................60
FHA Insurance.........................................................61
VA Guarantees.........................................................62
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS.................................................................62
General...............................................................63
Single-Family Loans...................................................63
Cooperative Loans.....................................................64
Contracts.............................................................65
Foreclosure on Mortgages..............................................66
Foreclosure on Mortgaged Properties Located in
the Commonwealth of Puerto Rico................................68
Foreclosure on Cooperative Shares.....................................69
Repossession with respect to Contracts................................70
Louisiana Law.........................................................71
Rights of Redemption with respect to Single-
Family Properties..............................................71
Notice of Sale; Redemption Rights with respect
to Manufactured Homes..........................................72
Anti-Deficiency Legislation and Other
Limitations on Lenders.........................................72
Junior Mortgages......................................................74
Home Equity Line of Credit Loans......................................74
Consumer Protection Laws with respect to
Contracts......................................................75
Other Limitations.....................................................76
Enforceability of Certain Provisions..................................76
Subordinate Financing.................................................78
Applicability of Usury Laws...........................................78
Alternative Mortgage Instruments......................................79
Formaldehyde Litigation with respect to
Contracts......................................................79
Soldiers' and Sailors' Civil Relief Act of 1940.......................80
Environmental Legislation.............................................80
Forfeitures in Drug and RICO Proceedings..............................81
Negative Amortization Loans...........................................82
FEDERAL INCOME TAX CONSEQUENCES...............................................82
General...............................................................82
REMICs ...............................................................83
Notes ..............................................................101
Grantor Trust Funds..................................................102
Partnership Trust Funds..............................................113
STATE AND OTHER TAX CONSEQUENCES.............................................119
ERISA CONSIDERATIONS.........................................................120
Representation from Plans Investing in Notes
with "Substantial Equity Features" or
Certain Securities............................................125
Tax Exempt Investors.................................................126
Consultation with Counsel............................................126
LEGAL INVESTMENT.............................................................126
METHODS OF DISTRIBUTION......................................................128
LEGAL MATTERS................................................................129
FINANCIAL INFORMATION........................................................129
RATING .....................................................................129
AVAILABLE INFORMATION........................................................130
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE.........................................................130
INDEX OF PRINCIPAL DEFINITIONS...............................................131
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IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information,
some of which may not apply to a particular series; and
o the accompanying prospectus supplement for a particular
series, which describes the specific terms of the
securities of that series. If the prospectus supplement
contains information about a particular series that
differs from the information contained in this
prospectus, you should rely on the information in the
prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Beginning with the section titled "The Trust Funds", certain capitalized terms
are used in this prospectus to assist you in understanding the terms of the
securities. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" beginning on page 131
in this prospectus.
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If you require additional information, the mailing address of our principal
executive offices is 18400 Von Karman, Suite 1000, Irvine, California 92612,
Attention: Secretary and the telephone number is 949-440- 7030. For other means
of acquiring additional information about us or a series of securities, see
"Incorporation of Certain Information by Reference" beginning on page 130 of
this prospectus.
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RISK FACTORS
The offered securities are not suitable investments for all investors.
In particular, you should not purchase the offered securities unless you
understand and are able to bear the prepayment, credit, liquidity and market
risks associated with the securities.
You should carefully consider, among other things, the following factors
in connection with the purchase of the securities offered hereby:
THE SECURITIES WILL HAVE LIMITED LIQUIDITY
There can be no assurance that a resale market for the securities of any
series will develop following the issuance and sale of any series of securities.
Even if a resale market does develop, it may not provide securityholders with
liquidity of investment or continue for the life of the securities of any
series. The prospectus supplement for any series of securities may indicate that
an underwriter specified in the prospectus supplement intends to establish a
secondary market in the securities, however no underwriter will be obligated to
do so. The securities offered hereby will not be listed on any securities
exchange.
THE SECURITIES WILL BE LIMITED OBLIGATIONS OF THE RELATED TRUST FUND AND NOT OF
ANY OTHER PARTY
Unless the applicable prospectus supplement provides otherwise, the
securities of each series will be payable solely from the assets of the related
trust fund, including any applicable credit support, and will not have any
claims against the assets of any other trust fund or recourse to any other
party. The securities will not represent an interest in or obligation of the
depositor, the master servicer or any of their respective affiliates. Unless the
applicable prospectus supplement provides otherwise, the only obligations of the
foregoing entities with respect to the securities, any mortgage loan or any
other trust fund asset will be the repurchase or substitution obligations, if
any, of the depositor pursuant to certain limited representations and warranties
made with respect to the mortgage loans or other trust fund assets and the
master servicer's servicing obligations under the related servicing agreement,
including, if and to the extent described in the related prospectus supplement,
its limited obligation to make certain advances in the event of delinquencies on
the mortgage loans.
Unless otherwise specified in the related prospectus supplement, neither
the securities nor the underlying mortgage loans or other trust fund assets will
be guaranteed or insured by any governmental agency or instrumentality, by the
depositor, the master servicer or any of their respective affiliates or by any
other person.
CREDIT SUPPORT WILL BE LIMITED; THE FAILURE OF CREDIT SUPPORT TO COVER LOSSES ON
THE TRUST FUND ASSETS MAY RESULT IN LOSSES ALLOCATED TO THE SECURITIES
Credit support is intended to reduce the effect of delinquent payments
or losses on the underlying trust fund assets on those classes of securities
that have the benefit of the credit support. With respect to each series of
securities, credit support will be provided in limited amounts, in one or more
of the forms referred to in this prospectus and the related prospectus
supplement. Regardless of the form of credit support provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. Furthermore, credit support
may provide only very limited coverage as to certain types of losses or risks,
and may provide no coverage as to
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certain other types of losses or risks. In the event losses exceed the amount of
coverage provided by any credit support or losses of a type not covered by any
credit support occur, these losses will be borne by the holders of the related
securities or certain classes of the related securities. SEE "DESCRIPTION OF
CREDIT SUPPORT".
THE PAYMENT PERFORMANCE OF THE SECURITIES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE RELATED TRUST FUNDS; GREATER RISK OF
LOSS IS ASSOCIATED WITH CERTAIN MORTGAGE LOANS
The securities will be directly or indirectly backed by mortgage loans
and/or manufactured housing, conditional sales contracts and installment loan
agreements. Certain types of mortgage loans may have a greater likelihood of
delinquency and foreclosure, and a greater likelihood of loss in the event of
delinquency and foreclosure. In the event that the mortgaged properties fail to
provide adequate security for the mortgage loans included in a trust fund, any
resulting losses, to the extent not covered by credit support, will be allocated
to the related securities in the manner described in the related prospectus
supplement and consequently would adversely affect the yield to maturity on
those securities. The depositor cannot assure you that the values of the
mortgaged properties have remained or will remain at the appraised values on the
dates of origination of the related mortgage loans. The prospectus supplement
for each series of securities will describe the mortgage loans which are to be
included in the trust fund related to your security and risks associated with
those mortgage loans which you should carefully consider in connection with the
purchase of your security.
DELINQUENCY AND FORECLOSURE OF MORTGAGE LOANS WHERE PROPERTY VALUES HAVE
DECLINED MAY PRESENT A GREATER RISK OF LOSS FOR SECURITIES BACKED BY MORTGAGE
LOANS CONCENTRATED IN SUCH AREAS
An investment in securities such as the securities which represent, in
general, interests in mortgage loans and/or manufactured housing, conditional
sales contracts and installment loan agreements may be affected by, among other
things, a decline in real estate values and changes in the borrowers' financial
condition. The depositor cannot assure you that values of the mortgaged
properties have remained or will remain at the appraised values on the dates of
origination of the related mortgage loans. If the residential real estate market
should experience an overall decline in property values such that the
outstanding balances of the mortgage loans, and any secondary financing on the
mortgaged properties, in a particular trust fund become equal to or greater than
the value of the mortgaged properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. Manufactured homes are less likely to experience
appreciation in value and are more likely to experience depreciation in value
over time than other types of housing properties. Mortgaged properties subject
to high loan-to-value ratios are at greater risk since such properties initially
have less equity than mortgaged properties with low loan-to-value ratios and
therefore a decline in property values could dissipate equity more quickly. A
decline in property values could extinguish the value of the interest of a
junior mortgage in the property before having any effect on the interest of the
related senior mortgage. Delinquencies, foreclosures and losses due to declining
values of mortgaged properties, especially those with high loan-to-value ratios,
would cause losses to the trust fund and, to the extent not covered by credit
support, would adversely affect your yield to maturity on the securities. In
addition, adverse economic conditions, which may or may not affect real property
values, may affect the timely payment by borrowers of scheduled payments of
principal and interest on the mortgage loans and, accordingly, the rates of
delinquencies, foreclosures or repossessions and losses with respect to any
trust
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fund. To the extent that losses on the mortgage loans in a trust fund are not
covered by credit support, such losses will be borne, at least in part, by the
holders of one or more classes of the securities of the related series offered
hereby.
Geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency than will be
experienced on mortgage loans generally. For example, a region's economic
condition and housing market may be directly, or indirectly, adversely affected
by natural disasters or civil disturbances such as earthquakes, hurricanes,
floods, eruptions or riots. The economic impact of any of these types of events
may also be felt in areas beyond the region immediately affected by the disaster
or disturbance. The mortgage loans underlying a series of securities may be
concentrated in these regions, and such concentration may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration.
The prospectus supplement for each series of securities will disclose
any significant concentration of mortgage loans.
VARYING UNDERWRITING STANDARDS OF UNAFFILIATED MORTGAGE LOAN SELLERS MAY PRESENT
A GREATER RISK OF LOSS FOR SECURITIES BACKED BY MORTGAGE LOANS ORIGINATED BY
SUCH SELLERS
Mortgage loans to be included in a trust fund will have been purchased
by the depositor, either directly or indirectly, from mortgage loan sellers. The
mortgage loans will generally have been originated in accordance with
underwriting standards acceptable to the depositor and generally described
herein under "Mortgage Loan Program--Underwriting Standards" as more
particularly described in the underwriting criteria included in the related
prospectus supplement. Nevertheless, in some cases, particularly those involving
unaffiliated mortgage loan sellers, the depositor may not be able to establish
the underwriting standards used in the origination of the related mortgage
loans. In those cases, the related prospectus supplement will include a
statement to such effect and will reflect what, if any, re- underwriting of the
related mortgage loans was completed by the depositor or any of its affiliates.
To the extent the mortgage loans cannot be re-underwritten or the underwriting
criteria cannot be verified, the mortgage loans might suffer losses greater than
they would had they been directly underwritten by the depositor or an affiliate
of the depositor. Any such losses, to the extent not covered by credit support,
may adversely affect the yield to maturity of the related securities.
NONPERFECTION OF SECURITY INTERESTS IN MANUFACTURED HOMES MAY RESULT IN LOSSES
ON THE RELATED CONTRACTS AND THE SECURITIES BACKED BY SUCH CONTRACTS
Any conditional sales contracts and installment loan agreements with
respect to manufactured homes (each, a "Contract") included in a trust fund will
be secured by a security interest in a manufactured home. Perfection of security
interests in manufactured homes and enforcement of rights to realize upon the
value of the manufactured homes as collateral for the Contracts are subject to a
number of federal and state laws, including the Uniform Commercial Code as
adopted in each state and each state's certificate of title statutes. The steps
necessary to perfect the security interest in a manufactured home will vary from
state to state. In the event the master servicer fails, due to clerical errors
or otherwise, to take the appropriate steps to perfect the security interest,
the trustee may not have a first priority security interest in the manufactured
home securing a Contract. Additionally, courts in many states have held that
manufactured homes may, under certain circumstances, become subject to real
estate title and recording
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laws. As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. The failure to properly perfect a valid,
first priority security interest in a manufactured home securing a Contract
could lead to losses that, to the extent not covered by credit support, may
adversely affect the yield to maturity of the related securities.
FORECLOSURE OF MORTGAGE LOANS MAY RESULT IN LIMITATIONS OR DELAYS IN RECOVERY
AND LOSSES ALLOCATED TO THE RELATED SECURITIES
Even assuming that the mortgaged properties provide adequate security
for the mortgage loans, substantial delays can be encountered in connection with
the liquidation of defaulted mortgage loans and corresponding delays in the
receipt of related proceeds by the securityholders could occur. An action to
foreclose on a mortgaged property securing a mortgage loan is regulated by state
statutes, rules and judicial decisions and is subject to many of the delays and
expenses of other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. In some states an action to
obtain a deficiency judgment is not permitted following a nonjudicial sale of a
mortgaged property. In the event of a default by a mortgagor, these
restrictions, among other things, may impede the ability of the master servicer
to foreclose on or sell the mortgaged property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related mortgage loan. The master
servicer will be entitled to deduct from liquidation proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
liquidated mortgage loan and not yet repaid, including payments to prior
lienholders, accrued servicing fees, legal fees and costs of legal action, real
estate taxes, and maintenance and preservation expenses. In the event that any
mortgaged properties fail to provide adequate security for the related mortgage
loans and insufficient funds are available from any applicable credit support,
securityholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be less as a
percentage of the outstanding principal balance of the smaller principal balance
mortgage loan than would be the case with a larger principal balance loan.
MORTGAGED PROPERTIES ARE SUBJECT TO CERTAIN ENVIRONMENTAL RISKS AND THE COST OF
ENVIRONMENTAL CLEAN-UP MAY INCREASE LOSSES ON THE RELATED MORTGAGE LOANS
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner of real property may be liable for
the costs of removal or remediation of hazardous or toxic substances on, under
or in such property. Such laws often impose liability whether or not the owner
or operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. A lender also risks such liability on foreclosure of the
mortgage on such property. In addition, the presence of hazardous or toxic
substances, or the failure to properly remediate such property, may adversely
affect the owner's or operator's ability to sell such property. Although the
incidence of environmental contamination of residential properties is less
common than that for commercial properties, mortgage loans contained in a trust
fund may be secured by mortgaged properties in violation of environmental laws,
ordinances or regulations. The master servicer is generally prohibited from
foreclosing on a mortgaged property unless it has taken adequate steps to ensure
environmental compliance with respect
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to such mortgaged property. However, to the extent the master servicer errs and
forecloses on mortgaged property that is subject to environmental law
violations, and to the extent a mortgage loan seller does not provide adequate
representations and warranties against such violations, or is unable to honor
such obligations, including the obligation to repurchase a mortgage loan upon
the breach of a representation or warranty, a trust fund could experience losses
which, to the extent not covered by credit support, could adversely affect the
yield to maturity on the related securities.
LIMITED NATURE OF RATINGS OF THE SECURITIES; DOWNGRADING OF A SECURITY MAY
ADVERSELY AFFECT THE LIQUIDITY OR MARKET VALUE OF SUCH SECURITY
It is a condition to the issuance of the securities that each series of
securities be rated in one of the four highest rating categories by a nationally
recognized statistical rating agency. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time. No person is obligated to maintain the rating on any security, and
accordingly, there can be no assurance to you that the ratings assigned to any
security on the date on which such security is originally issued will not be
lowered or withdrawn by a rating agency at any time thereafter. The rating(s) of
any series of securities by any applicable rating agency may be lowered
following the initial issuance of the securities as a result of the downgrading
of the obligations of any applicable credit support provider, or as a result of
losses on the related mortgage loans in excess of the levels contemplated by
such rating agency at the time of its initial rating analysis. Neither the
depositor, the master servicer nor any of their respective affiliates will have
any obligation to replace or supplement any credit support, or to take any other
action to maintain any rating(s) of any series of securities. In the event any
rating is revised or withdrawn, the liquidity or the market value of the related
security may be adversely affected.
FAILURE OF THE MORTGAGE LOAN SELLER TO REPURCHASE OR REPLACE A MORTGAGE LOAN MAY
RESULT IN LOSSES ALLOCATED TO THE RELATED SECURITIES
Each mortgage loan seller will have made representations and warranties
in respect of the mortgage loans sold by such mortgage loan seller and evidenced
by a series of securities. In the event of a breach of a mortgage loan seller's
representation or warranty that materially adversely affects the interests of
the securityholders in a mortgage loan, unless otherwise specified in the
related prospectus supplement, the related mortgage loan seller will be
obligated to cure the breach or repurchase or, if permitted, replace such
mortgage loan as described below. However, there can be no assurance that a
mortgage loan seller will honor its obligation to cure, repurchase or, if
permitted, replace any mortgage loan as to which a breach of a representation or
warranty arises. A mortgage loan seller's failure or refusal to honor its
repurchase obligation could lead to losses that, to the extent not covered by
credit support, may adversely affect the yield to maturity of the related
securities.
In instances where a mortgage loan seller is unable, or disputes its
obligation, to purchase affected mortgage loans, the master servicer may
negotiate and enter into one or more settlement agreements with the mortgage
loan seller that could provide for, among other things, the purchase of only a
portion of the affected mortgage loans. Any settlement could lead to losses on
the mortgage loans which would be borne by the related securities. Neither the
depositor nor the master servicer will be obligated to purchase a mortgage loan
if a mortgage loan seller defaults on its obligation to do so, and no assurance
can be given that the mortgage loan sellers will carry out their purchase
obligations. A default by a mortgage loan seller is not a default by the
depositor or by the master servicer. Any mortgage loan not so purchased or
substituted for shall remain in the related trust fund and any losses related
thereto shall be
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allocated to the related credit support, to the extent available, and otherwise
to one or more classes of the related series of securities.
All of the representations and warranties of a mortgage loan seller in
respect of a mortgage loan will have been made as of the date on which such
mortgage loan was purchased from the mortgage loan seller by or on behalf of the
depositor; the date as of which such representations and warranties were made
will be a date prior to the date of initial issuance of the related series of
securities. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of initial
issuance of the related series of securities. Accordingly, the mortgage loan
seller's purchase obligation, or, if specified in the related prospectus
supplement, limited replacement option, will not arise if, during the period
commencing on the date of sale of a mortgage loan by the mortgage loan seller,
an event occurs that would have given rise to such an obligation had the event
occurred prior to sale of the affected mortgage loan. The occurrence of events
during this period that are not covered by a mortgage loan seller's purchase
obligation could lead to losses that, to the extent not covered by credit
support, may adversely affect the yield to maturity of the related securities.
BOOK-ENTRY REGISTRATION MAY AFFECT LIQUIDITY OF THE SECURITIES
Because transfers and pledges of securities registered in the name of a
nominee of the Depository Trust Company ("DTC") can be effected only through
book entries at DTC through participants, the liquidity of the secondary market
for DTC registered securities may be reduced to the extent that some investors
are unwilling to hold securities in book entry form in the name of DTC and the
ability to pledge DTC registered securities may be limited due to the lack of a
physical certificate. Beneficial owners of DTC registered securities may, in
certain cases experience delay in the receipt of payments of principal and
interest since payments will be forwarded by the related trustee to DTC who will
then forward payment to the participants who will thereafter forward payment to
beneficial owners. In the event of the insolvency of DTC or a participant in
whose name DTC registered securities are recorded, the ability of beneficial
owners to obtain timely payment and, if the limits of applicable insurance
coverage is otherwise unavailable, ultimate payment of principal and interest on
DTC registered securities may be impaired.
THE YIELD TO MATURITY ON YOUR SECURITIES WILL DEPEND ON A VARIETY OF FACTORS
INCLUDING PREPAYMENTS
The timing of principal payments on the securities of a series will be
affected by a number of factors, including the following:
o the extent of prepayments on the underlying mortgage loans
in the trust fund or, if the trust fund is comprised of
underlying securities, on the mortgage loans backing the
underlying securities;
o how payments of principal are allocated among the classes
of securities of that series as specified in the related
prospectus supplement;
o if any party has an option to terminate the related trust
fund early, the effect of the exercise of the option;
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o the rate and timing of defaults and losses on the assets
in the related trust fund; and
o repurchases of assets in the related trust fund as a
result of material breaches of representations and
warranties made by the depositor, master servicer or
mortgage loan seller.
Prepayments on mortgage loans are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. The rate of prepayment of the mortgage loans
included in or underlying the assets in each trust fund may affect the yield to
maturity of the securities. In general, if you purchase a class of offered
securities at a price higher than its outstanding principal balance and
principal distributions on your class occur faster than you anticipate at the
time of purchase, the yield will be lower than you anticipate. Conversely, if
you purchase a class of offered securities at a price lower than its outstanding
principal balance and principal distributions on that class occur more slowly
than you anticipate at the time of purchase, the yield will be lower than you
anticipate.
The yield to maturity on certain types of classes of securities
including Strip Securities (as defined herein), Accrual Securities (as defined
herein), securities with an interest rate which fluctuates inversely with an
index or certain other classes in a series including more than one class of
securities, may be relatively more sensitive to the rate of prepayment on the
related mortgage loans than other classes of securities and, if applicable, to
the occurrence of an early retirement of the securities.
To the extent amounts in any pre-funding account have not been used to
purchase additional mortgage loans, holders of the securities may receive an
additional prepayment.
SEE "YIELD CONSIDERATIONS" AND "MATURITY AND PREPAYMENT CONSIDERATIONS"
IN THIS PROSPECTUS.
EXERCISE OF OPTIONAL TERMINATION RIGHT WILL AFFECT THE YIELD TO MATURITY ON THE
RELATED SECURITIES
If so specified in the related prospectus supplement, certain parties
will have the option to purchase, in whole but not in part, the securities
specified in the related prospectus supplement in the manner set forth in the
related prospectus supplement. Upon the purchase of the securities or at any
time thereafter, at the option of the party entitled to termination, the assets
of the trust fund may be sold, thereby effecting a retirement of the securities
and the termination of the trust fund, or the securities so purchased may be
held or resold.
The prospectus supplement for each series of securities will set forth
the party that may, at its option, purchase the assets of the related trust fund
if the aggregate principal balance of the mortgage loans and/or other trust fund
assets in the trust fund for that series is less than the percentage specified
in the related prospectus supplement of the aggregate principal balance of the
outstanding mortgage loans and/or other trust fund assets at the cut-off date
for that series (the "Clean-up Call"). Such percentage will be between 25% and
0%. The exercise of the termination right will effect the early retirement of
the securities of that series. The prospectus supplement for each series of
securities will set forth the price to be paid by the terminating party and the
amounts that the holders of the securities will be entitled to receive upon
early retirement.
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In addition to the repurchase of the assets in the related trust fund as
described above, the related prospectus supplement may permit that, a holder of
a non-offered class of securities (the "Call Class") will have the right, solely
at its discretion, to terminate the related trust fund on any distribution date
after the 12th distribution date following the date of initial issuance of the
related series of securities and until such date as the Clean-up Call becomes
exercisable and thereby effect early retirement of the securities of such
series. Any such call will be of the entire trust fund at one time; multiple
calls with respect to any series of securities will not be permitted. In such
case, the holders of the related securities offered hereby will be paid a price
equal to 100% of the principal balance of their securities offered hereby as of
the day of the purchase plus accrued interest thereon at the applicable interest
rate during the related period on which interest accrues on their securities
(the "Call Price"). Further, the Call Class must remit to the related trustee
for distribution to the securityholders funds equal to the Call Price. If funds
equal to the Call Price are not deposited with the related trustee, the
securities will remain outstanding. There will not be any additional remedies
available to securityholders. In addition, in the case of a trust fund for which
a REMIC (as defined herein) election or elections have been made, the
termination will constitute a "qualified liquidation" under Section 860F of the
Internal Revenue Code. In connection with a call by the Call Class, the final
payment to the securityholders will be made upon surrender of the related
securities to the trustee. Once the securities have been surrendered and paid in
full, there will not be any continuing liability from the securityholders or
from the trust fund to securityholders.
A trust fund may also be terminated and the certificates retired upon
the master servicer's determination, if applicable and based upon an opinion of
counsel, that the REMIC status of the trust fund has been lost or that a
substantial risk exists that such status will be lost for the then current
taxable year.
The termination of a trust fund and the early retirement of securities
by any party may adversely affect the yield to holders of certain classes of
related securities.
ERISA CONSIDERATIONS
If you are buying the offered securities on behalf of an individual
retirement account, Keogh plan or employee benefit plan, special rules may apply
to you. These rules are described in general in this prospectus under the
caption "ERISA Considerations." However, due to the complexity of regulations
that govern such plans, if you are subject to the Employment Retirement Income
Security Act of 1974, as amended ("ERISA") you are urged to consult your own
counsel regarding any consequences under ERISA of the acquisition, ownership and
disposition of the securities of any series offered hereby.
FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates (as defined herein) will be
required to report on their federal income tax returns as ordinary income their
pro rata share of the taxable income of the REMIC (as defined herein),
regardless of the amount or timing of their receipt of cash payments, as
described in "Federal Income Tax Consequences--REMICs". Accordingly, under
certain circumstances, holders of offered securities that constitute REMIC
Residual Certificates may have taxable income and tax liabilities arising from
such investment during a taxable year in excess of the cash received during such
period. The requirement that holders of REMIC Residual Certificates report their
pro rata share of the taxable income and net loss of the REMIC will continue
until the certificate balances of all classes of
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securities of the related series have been reduced to zero, even though holders
of REMIC Residual Certificates have received full payment of their stated
interest and principal. A portion (or, in certain circumstances, all) of such
Certificateholder's share of the REMIC taxable income may be treated as "excess
inclusion" income to such holder which (1) generally, will not be subject to
offset by losses from other activities, (2) for a tax-exempt holder, will be
treated as unrelated business taxable income and (3) for a foreign holder, will
not qualify for exemption from withholding tax. Individual holders of REMIC
Residual Certificates may be limited in their ability to deduct servicing fees
and other expenses of the REMIC. In addition, REMIC Residual Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a given
year on a REMIC Residual Certificate will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the REMIC Residual Certificate may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow characteristics.
VIOLATIONS OF FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE LOANS
Federal and state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices:
o regulate interest rates and other charges on mortgage loans;
o require certain disclosures to borrowers;
o require licensing of originators; and
o regulate generally the origination, servicing and collection
process for the mortgage loans.
Depending on the specific facts and circumstances involved, violations
may limit the ability of a trust fund to collect all or a part of the principal
of or interest on the mortgage loans, may entitle the borrower to a refund of
amounts previously paid and could result in liability for damages and
administrative enforcement against the originator or an assignee of the
originator, such as the trust, or the initial servicer or a subsequent servicer,
as the case may be. In particular, it is possible that some mortgage loans
included in a trust fund will be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Homeownership Act"). The Homeownership Act adds
certain additional provisions to Regulation Z, the implementing regulation of
the Federal Truth-In-Lending Act. These provisions impose additional disclosure
and other requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates or high up-front fees and charges. In general,
mortgage loans within the purview of the Homeownership Act have annual
percentage rates over 10 percentage points greater than the yield on Treasury
securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $441 (the $441 amount is adjusted
annually based on changes in the Consumer Price Index for the prior year). The
provisions of the Homeownership Act apply on a mandatory basis to all mortgage
loans originated on or after October 1, 1995. These provisions can impose
specific statutory liabilities upon creditors who fail to comply with their
provisions and may affect the enforceability of the related loans. In addition,
any assignee of the creditor, such as a trust fund, would generally be subject
to all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
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Recently, class action lawsuits under the Homeownership Act have been brought
naming as a defendant securitization trusts such as the trust funds with respect
to the mortgage loans.
In addition, certain amendments to the federal bankruptcy laws have been
proposed that could result in (1) the treatment of a claim secured by a junior
lien in a borrower's principal residence as protected only to the extent that
the claim was secured when the security interest was made and (2) the
disallowance of claims based on secured debt if the creditor failed to comply
with certain provisions of the Truth in Lending Act (15 U.S.C. ss.1639). Such
amendments could apply retroactively to secured debt incurred by the debtor
prior to the date of effectiveness of such amendments.
The depositor will represent that all applicable federal and state laws
were complied with in connection with the origination of the mortgage loans. If
there is a material and adverse breach of such representation, the depositor
will be obligated to repurchase any affected mortgage loan or to substitute a
new mortgage loan into the related trust fund. SEE "CERTAIN LEGAL ASPECTS OF
MORTGAGE LOANS".
ADDITIONAL RISK FACTORS WILL BE SET FORTH IN THE PROSPECTUS SUPPLEMENT RELATED
TO A SERIES OF SECURITIES
The prospectus supplement relating to a series of offered securities
will set forth additional risk factors pertaining to the characteristics or
behavior of the assets to be included in a particular trust fund and, if
applicable, certain legal aspects of the trust fund assets as well as any risk
factors pertaining to the investment in a particular class of offered
securities.
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THE TRUST FUNDS
Each series of mortgage pass-through certificates (the "Certificates")
will represent in the aggregate the entire beneficial ownership interest in
certain assets deposited into a trust fund (the "Trust Fund" or the "Trust Fund
Assets"). Each series of mortgage-backed notes (the "Notes") will represent
indebtedness of certain assets deposited into a trust fund. The certificates and
notes of any series are collectively referred to in this prospectus as the
"securities". The trust fund for any series of securities will consist of:
o a segregated pool of various types of one- to four-family
residential first and junior lien mortgage loans, cooperative
apartment loans or manufactured housing conditional sales
contracts and installment loan agreements, or beneficial
interests therein, exclusive of any portion of interest payments
(the "Retained Interest") on a trust fund asset retained by the
Depositor or any previous owner thereof, as from time to time are
subject to the related agreement governing the trust fund;
o assets as from time to time are identified as deposited in the
Certificate Account, pre-funding account or any other account
maintained for the benefit of the securityholders;
o property acquired on behalf of securityholders by foreclosure,
deed in lieu of foreclosure or repossession and any revenues
received thereon;
o the rights of the Depositor under any hazard insurance policies,
FHA insurance policies, VA guarantees and primary mortgage
insurance policies to be included in the trust fund, each as
described under "Description of Primary Insurance Policies";
o the rights of the Depositor under the agreement or agreements
pursuant to which it acquired the mortgage loans to be included
in the trust fund;
o the rights of the trustee in any cash advance reserve fund or
surety bond to be included in the trust fund, each as described
under "Advances in respect of Delinquencies"; and
o any letter of credit, mortgage pool insurance policy, special
hazard insurance policy, bankruptcy bond, reserve fund or other
type of credit support provided with respect to the related
series, each as described under "Description of Credit Support".
All trust fund assets will have been purchased by the Depositor on or
before the date of initial issuance of the related securities.
THE MORTGAGE LOANS
The mortgage loans to be included in a trust fund will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust or
other similar instruments ("Mortgages") that, in each case, create a first or
junior lien on the related mortgager's fee or leasehold interest in the related
mortgaged property.
Each mortgage loan will be originated by a person (the "Originator")
other than the Depositor. Each mortgage loan will be selected by the Depositor
for inclusion in a trust fund from among those purchased by the Depositor,
either directly or through its affiliates, from New Century Mortgage
Corporation, the
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indirect parent of the Depositor, and its affiliates or from banks, savings and
loan associations, mortgage bankers, mortgage brokers, investment banking firms,
the Federal Deposit Insurance Corporation (the "FDIC") and other mortgage loan
originators or sellers not affiliated with the Depositor. Each such seller of
mortgage loans will be referred to in this prospectus and the related prospectus
supplement as a "mortgage loan seller." The mortgage loans acquired by the
Depositor will generally have been originated in accordance with the underlying
criteria described in this prospectus supplement under "Mortgage Loan
Program-Underlying Standards"
The mortgage loans included in a trust fund may be secured by any of the
following:
o first or junior liens on by one- to four-family residential
properties including detached and attached dwellings, townhouses,
rowhouses, individual condominium units, individual units in
planned-unit developments and individual units in de minimis
planned-unit developments ("Single Family Properties" and the
related loans, "Single Family Loans"). Single-Family loans may be
conventional loans, FHA-insured loans or VA-guaranteed loans as
specified in the related prospectus supplement;
o mortgage loans evidenced by promissory notes ("Cooperative
Notes") secured by shares in a private cooperative housing
corporation (a "Cooperative" and the related loans, "Cooperative
Loans") that give the owner of the shares the right to occupy a
particular dwelling unit (each, a "Cooperative Unit") in the
Cooperative;
o conditional sales contracts and installment loan agreements with
respect to new or used Manufactured Homes (as defined herein, and
the related contracts or agreements, the "Contracts"), or
beneficial interests in Contracts; or
o real property acquired upon foreclosure or comparable conversion
of the mortgage loans included in a trust fund.
The Contracts will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
The Manufactured Homes securing the Contracts will consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of this paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under this chapter."
The Single-Family Properties, Cooperative shares (together with the
right to occupy a particular Cooperative Unit evidenced thereby) and
Manufactured Homes (each, a "Mortgaged Property") may be located in any one of
the fifty states, the District of Columbia, Guam, Puerto Rico or any other
territory of the United States. The Mortgaged Properties may include leasehold
interests in residential properties, the title to which is held by third party
lessors. The term of any leasehold will exceed the term of the Mortgage Note by
at least five years.
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The trust fund may contain mortgage loans secured by junior liens, and
the related senior liens may not be included in the trust fund.
TYPES OF MORTGAGE LOANS. The mortgage loans to be included in a trust
fund will be any one of the following types of mortgage loans:
o Fully amortizing mortgage loans with a fixed rate of interest (an
"Interest Rate") and level monthly payments to maturity;
o Fully amortizing mortgage loans with an Interest Rate that
adjusts periodically (with corresponding adjustments in the
amount of monthly payments) to equal the sum (which may be
rounded) of a fixed percentage amount and an index ("ARM Loans");
o ARM Loans that provide for an election, at the borrower's option,
to convert the adjustable interest rate to a fixed interest rate,
which will be described in the related prospectus supplement;
o ARM Loans that provide for negative amortization or accelerated
amortization resulting from delays in or limitations on the
payment adjustments necessary to amortize fully the outstanding
principal balance of the loan at its then applicable interest
rate over its remaining term;
o Fully amortizing mortgage loans with a fixed interest rate and
level monthly payments, or payments of interest only, during the
early years of the term, followed by periodically increasing
monthly payments of principal and interest for the duration of
the term or for a specified number of years, which will be
described in the related prospectus supplement;
o Fixed interest rate mortgage loans providing for level payment of
principal and interest on the basis of an assumed amortization
schedule and a balloon payment at the end of a specified term;
and
o mortgage loans that provide for a line of credit pursuant to
which amounts may be advanced to the borrower from time to time
("Home Equity Line of Credit Loans"); and
o Another type of mortgage loan described in the related prospectus
supplement.
MORTGAGE LOAN CHARACTERISTICS. Unless otherwise specified in the related
prospectus supplement, all of the mortgage loans to be included in a trust fund
will (a) have individual principal balances at origination of not less than
$10,000 or more than $5,000,000, and (b) have original terms to maturity of not
more than 40 years.
Unless otherwise specified in the related prospectus supplement, the
"Loan-to-Value Ratio" of a mortgage loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
mortgage loan (or, in the case of a Home Equity Line of Credit Loan, the maximum
principal amount which may be advanced over the term of the Loan), plus, in the
case of a mortgage loan secured by a junior lien, the outstanding principal
balance of the related senior liens, to the Value of the related mortgaged
property. The "Value" of a Single-Family Property or Cooperative Unit, other
than with respect to Refinance Loans, is the lesser of (a) the appraised value
determined in an appraisal obtained by the originator at origination of the loan
and (b) the sales price for the property. "Refinance Loans" are mortgage loans
made to refinance existing loans. The Value of the mortgaged property securing a
Refinance Loan is the appraised value of the mortgaged property determined in an
appraisal
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obtained at the time of origination of the Refinance Loan. Unless otherwise
specified in the related prospectus supplement, for purposes of calculating the
Loan-to-Value Ratio of a Contract relating to a new Manufactured Home, the Value
is no greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site) including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. With respect to a used
Manufactured Home, the Value is generally the least of the sale price, the
appraised value, and the National Automobile Dealer's Association book value
plus prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable.
A Mortgaged Property may have been subject to secondary financing at
origination of the mortgage loan, but, unless otherwise specified in the related
prospectus supplement, the total amount of primary and secondary financing at
the time of origination of the mortgage loan did not produce a combined
Loan-to-Value Ratio in excess of 100%.
Except as otherwise specified in the related prospectus supplement, each
mortgage loan having a Loan-to-Value Ratio at origination in excess of 80%, is
required to be covered by a primary mortgage guaranty insurance policy insuring
against default on such mortgage loan as to at least the principal amount
thereof exceeding 75% of the Value of the Mortgaged Property at origination of
the mortgage loan. Such insurance must remain in force at least until the
mortgage loan amortizes to a level that would produce a Loan-to-Value Ratio
lower than 80%. SEE "DESCRIPTION OF PRIMARY INSURANCE POLICIES--PRIMARY MORTGAGE
INSURANCE POLICIES".
With respect to each Mortgaged Property, unless otherwise provided in
the related prospectus supplement, the borrower will have represented that the
dwelling is either (a) an owner-occupied primary residence or (b) a vacation or
second home that (1) is not part of a mandatory rental pool and (2) is suitable
for year-round occupancy. With respect to a vacation or second home, no income
derived from the property will be considered for underwriting purposes.
Unless otherwise specified in the related prospectus supplement, the
aggregate principal balance on the Cut-off Date of mortgage loans secured by
condominium units will not exceed 30% of the aggregate principal balance of the
mortgage loans in the related mortgage pool. A mortgage loan secured by a
condominium unit will not be included in a mortgage pool unless, at the time of
sale of such mortgage loan by the mortgage loan seller, certain representations
and warranties as to the condominium project are made by the mortgage loan
seller or an affiliate of the mortgage loan seller or by such other person
acceptable to the Depositor having knowledge regarding the subject matter of
such representations and warranties. Unless otherwise specified in the related
prospectus supplement, the mortgage loan seller, or another party on its behalf,
will have made the following representations and warranties:
o If a condominium project is subject to developer control or to
incomplete phasing or add-ons, at least 70% of the units have
been sold to bona fide purchasers and are occupied as primary
residences or vacation or second homes.
o If a condominium project has been controlled by the unit owners
(other than the developer) for less than two years and is not
subject to incomplete phasing or add-ons, at least 70% of the
units
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have been sold to bona fide purchasers and at least 60% of the
units are occupied as primary residences or vacation or second
homes.
o If a condominium project has been controlled by the unit owners
(other than the developer) for at least two years, has all common
elements completed and is not subject to phasing or add-ons, the
mortgage loan seller, or another party on its behalf, must
represent and warrant, unless otherwise specified in the related
prospectus supplement, that the marketability of the project has
been proven and that at least 90% of the units have been sold to
bona fide purchasers.
The foregoing percentages may be modified in the case of a particular
project upon proof of demonstrated market acceptance but in no event will any
such percentage be reduced below 51%. SEE "MORTGAGE LOAN
PROGRAM--REPRESENTATIONS BY OR ON BEHALF OF MORTGAGE LOAN SELLERS; REPURCHASES"
HEREIN FOR A DESCRIPTION OF CERTAIN OTHER REPRESENTATIONS MADE BY OR ON BEHALF
OF MORTGAGE LOAN SELLERS AT THE TIME MORTGAGE LOANS ARE SOLD.
The trust fund may include mortgage loans subject to temporary buydown
plans ("Buydown Mortgage Loans"), pursuant to which the monthly payments made by
the borrower in the early years of the mortgage loan (the "Buydown Period") will
be less than the scheduled monthly payments on the mortgage loan, the resulting
difference to be made up from (a) an amount contributed by the borrower, the
seller of the Mortgaged Property, or another source (such amount, exclusive of
investment earnings thereon, being hereinafter referred to as "Buydown Funds")
and placed in a custodial account and (b) unless otherwise specified in the
prospectus supplement, investment earnings on the Buydown Funds. SEE
"DESCRIPTION OF THE SECURITIES--PAYMENTS ON MORTGAGE LOANS. Generally, the
borrower under each Buydown Mortgage Loan will be qualified at the applicable
Buydown Mortgage Rate. Accordingly, the repayment of a Buydown Mortgage Loan is
dependent on the ability of the borrower to make larger level monthly payments
after the Buydown Funds have been depleted and, for certain Buydown Mortgage
Loans, during the Buydown Period. SEE "MORTGAGE LOAN PROGRAM--UNDERWRITING
STANDARDS" FOR A DISCUSSION OF LOSS AND DELINQUENCY CONSIDERATIONS RELATING TO
BUYDOWN MORTGAGE LOANS.
The trust fund may include Home Equity Line of Credit Loans. Interest on
each Home Equity Line of Credit Loan, excluding introductory rates offered from
time to time during promotional periods, is computed and payable monthly on the
average daily outstanding balance of such mortgage loan. Principal on a Home
Equity Line of Credit Loan may be drawn down, up to a maximum amount as set
forth in the related prospectus supplement, or repaid under each such mortgage
loan from time to time, but may be subject to a minimum periodic payment. A
trust fund will not include any amounts borrowed under a Home Equity Line of
Credit Loan after the related Cut-off Date unless otherwise stated in the
related prospectus supplement.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENT. Each prospectus
supplement will contain specific information with respect to the mortgage loans
contained in the related trust fund, as of the date of the prospectus supplement
and to the extent then specifically known to the Depositor, including the
following:
o the aggregate outstanding principal balance, the largest,
smallest and average outstanding principal balance of the trust
fund assets as of the applicable Cut-off Date, and, with respect
to mortgage loans secured by a junior lien, the amount of the
related senior liens,
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o the type of property securing the mortgage loans (e.g., one- to
four-family houses, shares in Cooperatives and the related
proprietary leases or occupancy agreements, condominium units and
other attached units, new or used Manufactured Homes and vacation
and second homes),
o the original terms to maturity of the mortgage loans,
o the earliest origination date and latest maturity date,
o the aggregate principal balance of mortgage loans having
Loan-to-Value Ratios at origination exceeding 80%, or, with
respect to mortgage loans secured by a junior lien, the aggregate
principal balance of mortgage loans having combined Loan-to-Value
Ratios exceeding 80%,
o the Interest Rates or range of Interest Rates borne by the
mortgage loans,
o the geographical distribution of the mortgage loans on a
state-by-state basis,
o the number and aggregate principal balance of Buydown Mortgage
Loans, if any,
o the weighted average Retained Interest, if any,
o with respect to ARM Loans, the index, the adjustment dates, the
highest, lowest and weighted average margin, and the maximum
Interest Rate variation at the time of any adjustment and over
the life of the ARM Loan, and
o whether the mortgage loans provide for payments of interest only
for any period and the frequency and amount by which, and the
term during which, monthly payments adjust.
If specific information respecting the trust fund assets is not known to
the Depositor at the time securities are initially offered, more general
information of the nature described above will be provided in the prospectus
supplement, and specific information will be set forth in a report which will be
available to purchasers of the related securities at or before the initial
issuance of the securities and will be filed, together with the related Pooling
and Servicing Agreement, with respect to each series of certificates, or the
related Servicing Agreement, Trust Agreement and Indenture, with respect to each
series of notes, as part of a report on Form 8-K with the Securities and
Exchange Commission within fifteen days after the initial issuance.
PRE-FUNDING ACCOUNT
The Agreement may provide for the transfer by the mortgage loan seller
of additional mortgage loans to the related trust fund after the Closing Date.
In that case, the trust fund will include a pre-funding account, into which all
or a portion of the proceeds of the sale of one or more classes of securities of
the related series will be deposited to be released as additional mortgage loans
are transferred. Additional mortgage loans will be required to conform to the
requirements set forth in the related Agreement or other agreement providing for
such transfer, and will generally be underwritten to the same standards as the
mortgage loans initially included in the trust fund. A pre-funding account will
be required to be maintained as an eligible account under the related agreement,
all amounts in the pre-funding account will be required to be invested in
Permitted Investments and the amount held in the pre-funding account shall at no
time exceed 25% of the aggregate outstanding principal balance of the
securities. The related Agreement or other agreement providing for the transfer
of additional mortgage loans will generally
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provide that all such transfers must be made within 3 months after the Closing
Date, and that amounts set aside to fund the transfers, whether in a pre-funding
account or otherwise, and not so applied within the required period of time will
be deemed to be principal prepayments and applied in the manner set forth in the
related prospectus supplement.
The Depositor will be required to provide data regarding the additional
mortgage loans to the rating agencies and the security insurer, if any,
sufficiently in advance of the scheduled transfer to permit review by such
parties. Transfer of the additional mortgage loans will be further conditioned
upon confirmation by the rating agencies that the addition of mortgage loans to
the trust fund will not result in the downgrading of the securities or, in the
case of a series guaranteed or supported by a security insurer, will not
adversely affect the capital requirements of such security insurer. Finally, a
legal opinion to the effect that the conditions to the transfer of the
additional mortgage loans have been satisfied.
THE DEPOSITOR
New Century Mortgage Securities, Inc. (the "Depositor") was incorporated
in the State of Delaware on March 25, 1999 as an indirect wholly-owned
subsidiary of New Century Mortgage Corporation. The Depositor was organized for
the purpose of serving as a private secondary mortgage market conduit. The
Depositor maintains its principal office at 18400 Von Karman, Suite 1000,
Irvine, California 92612. Its telephone number is 949-440-7030.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
USE OF PROCEEDS
The net proceeds to be received from the sale of the securities will be
applied by the Depositor to the purchase of trust fund assets or will be used by
the Depositor for general corporate purposes. The Depositor expects that it will
make additional sales of securities similar to the securities from time to time,
but the timing and amount of offerings of securities will depend on a number of
factors, including the volume of trust fund assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
Unless otherwise provided in the related prospectus supplement, each
monthly interest payment on a trust fund asset is calculated as one-twelfth of
the applicable Interest Rate multiplied by the unpaid principal balance of the
trust fund asset. Interest to be distributed on each distribution date to the
holders of the various classes of securities, other than certain classes of
Strip Securities, of each series will be similarly calculated for the applicable
period, as one-twelfth of the applicable Security Interest Rate multiplied by
the outstanding Principal Balance of the security, except as provided below with
respect to prepayments. In the case of Strip securities with no or, in certain
cases, a nominal Principal Balance, such distributions of interest will be in an
amount (as to any distribution date, "Stripped Interest") described in the
related prospectus supplement.
The effective yield to securityholders will be lower than the yield
otherwise produced by the applicable Security Interest Rate, or, as to a Strip
Security, the distributions of Stripped Interest thereon, and purchase price,
because although interest accrued on each trust fund asset during each month is
due and payable on the first day of the following month, unless otherwise
provided in the related prospectus
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supplement, the distribution of interest on the securities will not be made
until the distribution date occurring in the month following the month of
accrual of interest in the case of mortgage loans, and in the case of a series
of securities having distribution dates occurring at intervals less frequently
than monthly.
Unless otherwise specified in the related prospectus supplement, when a
principal prepayment in full is made on a mortgage loan, the borrower is charged
interest only for the period from the due date of the preceding monthly payment
up to the date of such prepayment, instead of for a full month. Accordingly, the
effect of principal prepayments in full during any month will be to reduce the
aggregate amount of interest collected that is available for distribution to
securityholders. If so provided in the related prospectus supplement, certain of
the mortgage loans may contain provisions limiting prepayments hereof or
requiring the payment of a prepayment penalty upon prepayment in full or in
part. Unless otherwise provided in the related prospectus supplement, any
prepayment penalty will be applied to offset the above-described shortfalls in
interest collections on the related distribution date. Unless otherwise
specified in the related prospectus supplement, partial principal prepayments
are applied on the first day of the month following receipt, with no resulting
reduction in interest payable for the period in which the partial principal
prepayment is made. Unless specified otherwise in the related prospectus
supplement, neither the trustee, the master servicer nor the Depositor will be
obligated to fund shortfalls in interest collections resulting from prepayments.
Full and partial principal prepayments collected during the applicable
Prepayment Period will be available for distribution to securityholders on the
related distribution date. Unless otherwise provided in the related prospectus
supplement, a "Prepayment Period" in respect of any distribution date will
commence on the first day of the month in which the preceding distribution date
occurs (or, as to the first Prepayment Period, the day after the Cut-off Date)
and will end on the last day of the month prior to the month in which the
related distribution date occurs. SEE "MATURITY AND PREPAYMENT CONSIDERATIONS"
AND "DESCRIPTION OF THE SECURITIES--GENERAL".
In addition, if so specified in the related prospectus supplement, a
holder of a non-offered class of securities (the "Call Class") will have the
right, solely at its discretion, to terminate the related trust fund on any
distribution date after the 12th distribution date following the date of initial
issuance of the related series of securities and until such date as the Clean-up
Call becomes exercisable and thereby effect early retirement of the securities
of such series. Any such call will be of the entire trust fund at one time;
multiple calls with respect to any series of securities will not be permitted.
Such termination would result in the concurrent retirement of all outstanding
securities of the related series and would decrease the average lives of such
securities, perhaps significantly. The earlier after the Closing Date that such
termination occurs, the greater would be such effect.
The prospectus supplement for each series of securities may set forth
additional information regarding yield considerations.
MATURITY AND PREPAYMENT CONSIDERATIONS
The original terms to maturity of the trust fund assets in a particular
trust fund will vary depending upon the type of mortgage loans underlying or
comprising the trust fund assets in such trust fund. Each prospectus supplement
will contain information with respect to the type and maturities of the trust
fund assets in the related trust fund. Unless otherwise specified in the related
prospectus supplement, all of the Single-Family Loans, Cooperative Loans and
Contracts may be prepaid without penalty in full or in part at any time. If so
provided in the related prospectus supplement, certain of the mortgage loans may
contain provisions prohibiting prepayment for a specified period after the
origination date (a "Lockout
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Period" and the date of expiration of the Lockout Period, a "Lockout Date"),
prohibiting partial prepayments entirely or prohibiting prepayment in full or in
part without a prepayment penalty.
The prepayment experience on the mortgage loans underlying or comprising
the trust fund assets in a trust fund will affect the weighted average life of
the related series of securities. Weighted average life refers to the average
amount of time that will elapse from the date of issuance of a security until
each dollar of principal of such security will be repaid to the investor. The
weighted average life of the securities of a series will be influenced by the
rate at which principal on the mortgage loans underlying or comprising the trust
fund assets included in the related trust fund is paid, which payments may be in
the form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and liquidations due to
default and hazard or condemnation losses). The rate of prepayment with respect
to fixed rate mortgage loans has fluctuated significantly in recent years. In
general, if interest rates fall below the Interest Rates on the mortgage loans
underlying or comprising the trust fund assets, the rate of prepayment would be
expected to increase. There can be no assurance as to the rate of prepayment of
the mortgage loans underlying or comprising the trust fund assets in any trust
fund. The Depositor is not aware of any publicly available statistics relating
to the principal prepayment experience of diverse portfolios of mortgage loans
over an extended period of time. All statistics known to the Depositor that have
been compiled with respect to prepayment experience on mortgage loans indicates
that while some mortgage loans may remain outstanding until their stated
maturities, a substantial number will be paid prior to their respective stated
maturities. The Depositor is not aware of any historical prepayment experience
with respect to mortgage loans secured by properties located in Puerto Rico or
Guam and, accordingly, prepayments on such loans may not occur at the same rate
or be affected by the same factors as other mortgage loans.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates, the terms
of the mortgage loans (as affected by the existence of lockout provisions,
due-on-sale and due-on-encumbrance clauses, prepayment fees and the frequency
and amount of any future draws on any Home Equity Line of Credit Loans), the
quality of management of the mortgaged properties, possible changes in tax laws
and the availability of mortgage funds, may affect prepayment experience. Unless
otherwise provided in the related prospectus supplement, all mortgage loans in
the trust fund will contain due-on-sale provisions permitting the lender to
accelerate the maturity of such mortgage loan upon sale or certain transfers by
the borrower of the underlying Mortgaged Property. FHA Loans and VA Loans
contain no such clause and may be assumed by the purchaser of the mortgaged
property. Thus, the rate of prepayments on FHA Loans and VA Loans may be lower
than that of conventional mortgage loans bearing comparable interest rates.
With respect to a series of securities evidencing interests in the trust
fund including mortgage loans, unless otherwise provided in the related
prospectus supplement, the master servicer generally will enforce any
due-on-sale clause or due-on-encumbrance clause, to the extent it has knowledge
of the conveyance or encumbrance or the proposed conveyance or encumbrance of
the underlying Mortgaged Property and reasonably believes that it is entitled to
do so under applicable law; provided, however, that the master servicer will not
take any enforcement action that would impair or threaten to impair any recovery
under any related insurance policy. See "Description of the
Securities--Collection and Other Servicing Procedures" and "Certain Legal
Aspects of Mortgage Loans--Enforceability of Certain Provisions" and
"--Prepayment Charges and Prepayments" for a description of certain provisions
of each Agreement and certain legal developments that may affect the prepayment
experience on the mortgage loans. See "Description of the
Securities--Termination" for a description of the possible early termination of
any series of securities. See also "Mortgage Loan Program--Representations by or
on behalf of Mortgage Loan Sellers; Repurchases" and "Description of the
Securities--Assignment of Trust
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Fund Assets" for a description of the obligation of the mortgage loan sellers,
the master servicer and the Depositor to repurchase mortgage loans under certain
circumstances. In addition, if the applicable Agreement for a series of
securities provides for a pre-funding account or other means of funding the
transfer of additional mortgage loans to the related trust fund, as described
under "Description of the Trust Funds--Pre-Funding Account" herein, and the
trust fund is unable to acquire such additional mortgage loans within any
applicable time limit, the amounts set aside for such purpose may be applied as
principal payments on one or more classes of securities of such series.
MORTGAGE LOAN PROGRAM
The mortgage loans will be purchased by the Depositor, either directly
or indirectly, from the mortgage loan sellers. The mortgage loans so acquired by
the Depositor will have been originated by the Originators in accordance with
the underwriting criteria specified below under "Underwriting Standards".
UNDERWRITING STANDARDS
All mortgage loans will have been subject to underwriting standards
acceptable to the Depositor and applied as described below. Each mortgage loan
seller, or another party on its behalf, will represent and warrant that mortgage
loans purchased by or on behalf of the Depositor from it have been originated by
the related Originators in accordance with such underwriting guidelines.
In general, the underwriting standards are applied by the Originators to
evaluate the value of the Mortgaged Property and to evaluate the adequacy of
such Mortgaged Property as collateral for the mortgage loan. While the
Originator's primary consideration in underwriting a mortgage loan is the value
of the Mortgaged Property, the Originator also considers, unless otherwise
specified in the related prospectus supplement, the borrower's credit history
and repayment ability as well as the type and use of the Mortgaged Property. As
a result of such underwriting criteria, changes in the values of mortgage
properties may have a greater effect on the delinquency, foreclosure and loss
experience on the mortgage loans in a trust fund from such change would be
expected to have on mortgage loans that are originated in a more traditional
manner. No assurance can be given by the Depositor that the values of the
related Mortgaged Properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans.
Initially, a prospective borrower is required to fill out a detailed
application with respect to the applicant's liabilities, income and credit
history and personal information, as well as an authorization to apply for a
credit report that summarizes the borrower's credit history with local merchants
and lenders and any record of bankruptcy. In addition, an employment
verification is obtained that reports the borrower's current salary and may
contain information regarding length of employment and whether it is expected
that the borrower will continue such employment in the future. If a prospective
borrower is self-employed, the borrower is required to submit copies of signed
tax returns. The borrower may also be required to authorize verification of
deposits at financial institutions where the borrower has demand or savings
accounts.
In determining the adequacy of the property as collateral, an appraisal
is made of each property considered for financing, except in the case of new
Manufactured Homes, as described under "The Trust Funds". Each appraiser is
selected in accordance with predetermined guidelines established for appraisers.
The appraiser is required to inspect the property and verify that it is in good
condition and that construction, if new, has been completed. The appraisal is
based on the market value of comparable
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homes, the estimated rental income, if considered applicable by the appraiser,
and, when deemed appropriate, the cost of replacing the home. The value of the
property being financed, as indicated by the appraisal, must be such that it
currently supports, and is anticipated to support in the future, the outstanding
loan balance.
Once all applicable employment, credit and property information is
received, the Originator reviews the applicant's source of income, calculates
the amount of income from sources indicated on the loan application or similar
documentation, reviews the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant's ability to repay the Loan,
reviews the type of property being financed and reviews the property. In
evaluating the credit quality of borrowers, the Originator may utilize credit
bureau risk scores (a "FICO score"), a statistical ranking of likely future
credit performance developed by Fair, Isaac & Company and three national credit
data repositories - Equifax, TransUnion and Experian.
In the case of a mortgage loan secured by a leasehold interest in a
residential property, the title to which is held by a third party lessor, the
mortgage loan seller, or another party on its behalf, is required to warrant,
among other things, that the remaining term of the lease and any sublease be at
least five years longer than the remaining term of the mortgage loan.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a residential property may not seek a deficiency
judgment against the mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The underwriting standards to be applied
to the mortgage loans in all states, including anti-deficiency states, require
that the value of the property being financed, as indicated by the appraisal,
currently supports and is anticipated to support in the future the outstanding
principal balance of the mortgage loan.
With respect to any FHA Loan the mortgage loan seller is required to
represent that the FHA Loan complies with the applicable underwriting policies
of the FHA. SEE "DESCRIPTION OF PRIMARY INSURANCE POLICIES--FHA INSURANCE". With
respect to any VA Loan, the mortgage loan seller is required to represent that
the VA Loan complies with the applicable underwriting policies of the VA. SEE
"DESCRIPTION OF PRIMARY INSURANCE POLICIES-VA GUARANTEE".
The recent foreclosure or repossession and delinquency experience with
respect to loans serviced by the master servicer or, if applicable, a
significant sub-servicer will be provided in the related prospectus supplement.
Certain of the types of loans that may be included in the mortgage pools
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such mortgage loans may
provide for escalating or variable payments by the borrower. These types of
mortgage loans are underwritten on the basis of a judgment that borrowers will
have the ability to make larger monthly payments in subsequent years. In some
instances, however, a borrower's income may not be sufficient to make loan
payments as such payments increase.
QUALIFICATIONS OF ORIGINATORS AND MORTGAGE LOAN SELLERS
Unless otherwise specified in the related prospectus supplement, each
Originator and mortgage loan seller will be required to satisfy the
qualifications set forth herein. Each Originator must be an institution
experienced in originating and servicing conventional mortgage loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate and service those
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loans. Each Originator and mortgage loan seller must be a seller/servicer
approved by either Fannie Mae or Freddie Mac. Each Originator and mortgage loan
seller must be a HUD-approved mortgagee or an institution the deposit accounts
in which are insured by the Bank Insurance Fund ("BIF") or Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). In addition, with respect to FHA Loans or VA Loans, each Originator
must be approved to originate such mortgage loans by the FHA or VA, as
applicable. In addition, each Originator and mortgage loan seller must satisfy
certain criteria as to financial stability evaluated on a case by case basis by
the Depositor.
REPRESENTATIONS BY OR ON BEHALF OF MORTGAGE LOAN SELLERS; REPURCHASES
Each mortgage loan seller, or a party on its behalf, will have made
representations and warranties in respect of the mortgage loans sold by such
mortgage loan seller. Such representations and warranties include, among other
things:
o that any required hazard insurance was effective at the
origination of each mortgage loan, and that each such policy
remained in effect on the date of purchase of the mortgage loan
from the mortgage loan seller by or on behalf of the Depositor;
o that either (A) title insurance insuring, subject only to
permissible title insurance exceptions, the lien status of the
Mortgage was effective at the origination of each and such policy
remained in effect on the date of purchase of the mortgage loan
from the mortgage loan seller by or on behalf of the Depositor or
(B) if the Mortgaged Property securing any mortgage loan is
located in an area where such policies are generally not
available, there is in the related mortgage file an attorney's
certificate of title indicating (subject to such permissible
exceptions set forth therein) the first lien status of the
mortgage;
o that the mortgage loan seller had good title to each mortgage
loan and each mortgage loan was subject to no offsets, defenses,
counterclaims or rights of rescission except to the extent that
any buydown agreement described herein may forgive certain
indebtedness of a borrower;
o that each Mortgage constituted a valid first lien on, or security
interest in, the Mortgaged Property, subject only to permissible
title insurance exceptions and senior liens, if any, and that the
Mortgaged Property was free from damage and was in good repair;
o that there were no delinquent tax or assessment liens against the
Mortgaged Property;
o that each mortgage loan was current as to all required payments;
and
o that each mortgage loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws
and regulations in all material respects.
If a person other than a mortgage loan seller makes any of the foregoing
representations and warranties on behalf of such mortgage loan seller, the
identity of such person will be specified in the related prospectus supplement.
Any person making representations and warranties on behalf of a mortgage loan
seller shall be an affiliate of the mortgage loan seller or such other person
acceptable to the Depositor having knowledge regarding the subject matter of
such representations and warranties.
All of the representations and warranties made by or on behalf of a
mortgage loan seller in respect of a mortgage loan will have been made as of the
date on which such mortgage loan seller sold the
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mortgage loan to or on behalf of the Depositor. A substantial period of time may
have elapsed between such date and the date of initial issuance of the series of
securities evidencing an interest in such mortgage loan. Unless otherwise
specified in the related prospectus supplement, in the event of a breach of any
such representation or warranty, the mortgage loan seller will be obligated to
cure such breach or repurchase or replace the affected mortgage loan as
described below. Since the representations and warranties made by or on behalf
of such mortgage loan seller do not address events that may occur following the
sale of a mortgage loan by such mortgage loan seller, it will have a cure,
repurchase or substitution obligation in connection with a breach of such a
representation and warranty only if the relevant event that causes such breach
occurs prior to the date of such sale. A mortgage loan seller would have no such
obligations if the relevant event that causes such breach occurs after the date
of such sale. However, the Depositor will not include any mortgage loan in the
trust fund for any series of securities if anything has come to the Depositor's
attention that would cause it to believe that the representations and warranties
made in respect of such mortgage loan will not be accurate and complete in all
material respects as of the date of initial issuance of the related series of
securities.
The only representations and warranties to be made for the benefit of
holders of securities in respect of any mortgage loan relating to the period
commencing on the date of sale of such mortgage loan by the mortgage loan seller
to or on behalf of the Depositor will be certain limited representations of the
Depositor and of the master servicer described below under "Description of the
Securities--Assignment of Trust Fund Assets". If the master servicer is also a
mortgage loan seller with respect to a particular series, such representations
will be in addition to the representations and warranties made by the master
servicer in its capacity as a mortgage loan seller.
The master servicer and/or trustee will promptly notify the relevant
mortgage loan seller of any breach of any representation or warranty made by or
on behalf of it in respect of a mortgage loan that materially and adversely
affects the value of such mortgage loan or the interests in the mortgage loan of
the Securityholders. If such mortgage loan seller cannot cure such breach within
60 days from the date on which the mortgage loan seller was notified of such
breach, then such mortgage loan seller will be obligated to repurchase such
mortgage loan from the trustee within 90 days from the date on which the
mortgage loan seller was notified of such breach, at the Purchase Price
therefor. As to any mortgage loan, unless otherwise specified in the related
prospectus supplement, the "Purchase Price" is equal to the sum of (1) the
unpaid principal balance of the mortgage loan, (2) unpaid accrued interest on
the Stated Principal Balance (as defined below) at the Net Interest Rate from
the date as to which interest was last paid to the end of the calendar month in
which the relevant purchase is to occur, (3) any unpaid servicing fees and
certain unreimbursed servicing expenses payable or reimbursable to the master
servicer with respect to such mortgage loan, (4) any unpaid Retained Interest
with respect to such mortgage loan, (5) any Realized Losses, as described below
under "Description of the Securities--Allocation of Losses", incurred with
respect to such mortgage loan, and (6) if applicable, any expenses reasonably
incurred or to be incurred by the master servicer or the trustee in respect of
the breach or defect giving rise to a purchase obligation. A mortgage loan
seller, rather than repurchase a mortgage loan as to which a breach has
occurred, may have the option, within a specified period after initial issuance
of the related series of securities, to cause the removal of such mortgage loan
from the trust fund and substitute in its place one or more other mortgage
loans, in accordance with the standards described below under "Description of
the Securities--Assignment of the Mortgage Loans". The master servicer will be
required under the applicable Pooling and Servicing Agreement or Servicing
Agreement to use its best efforts to enforce such obligations of the mortgage
loan seller for the benefit of the trustee and the holders of the securities,
following the practices it would employ in its good faith business judgment were
it the owner of such mortgage loan. This repurchase or substitution obligation
will constitute the sole remedy available to
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holders of securities or the trustee for a breach of representation by a
mortgage loan seller. SEE "DESCRIPTION OF THE SECURITIES--GENERAL".
The "Stated Principal Balance" of any mortgage loan as of any date of
determination is equal to the principal balance of the mortgage loan as of the
Cut-off Date, after application of all scheduled principal payments due on or
before the Cut-off Date, whether or not received, reduced by all amounts,
including advances by the master servicer, allocable to principal that are
distributed to securityholders on or before the date of determination, and as
further reduced to the extent that any Realized Loss (as defined below) thereon
has been, or, if it had not been covered by any form of credit support, would
have been, allocated to one or more classes of securities on or before the date
of determination.
Neither the Depositor nor the master servicer will be obligated to
purchase or substitute for a mortgage loan if a mortgage loan seller defaults on
its obligation to do so, and no assurance can be given that mortgage loan
sellers will carry out such obligations with respect to mortgage loans. To the
extent that a breach of the representations and warranties of a mortgage loan
seller may also constitute a breach of a representation made by the Depositor,
the Depositor may have a repurchase or substitution obligation as described
below under "Description of the Securities--Assignment of Trust Fund Assets".
DESCRIPTION OF THE SECURITIES
The securities will be issued in series. Each series of certificates
evidencing interests in a trust fund consisting of mortgage loans will be issued
pursuant to an agreement (the "Pooling and Servicing Agreement") among the
Depositor, the master servicer and the trustee named in the prospectus
supplement. Each series of notes evidencing indebtedness of a trust fund
consisting of mortgage loans will be issued pursuant to an indenture (the
"Indenture") between the related Issuer (the "Issuer") and the trustee named in
the prospectus supplement. Such trust fund will be created pursuant to a trust
agreement (the "Owner Trust Agreement") between the Depositor and the owner
trustee. The Issuer will be the Depositor or an owner trust established by it
for the purpose of issuing such series of notes. Where the Issuer is an owner
trust, the ownership of the trust fund will be evidenced by certificates (the
"Equity Certificates") issued under the Owner Trust Agreement (each Owner Trust
Agreement, Indenture, Servicing Agreement or Pooling and Servicing Agreement, an
"Agreement"). The provisions of each Agreement will vary depending upon the
nature of the securities to be issued thereunder and the nature of the related
trust fund. Various forms of Pooling and Servicing Agreement, Servicing
Agreement, Owner Trust Agreement, Trust Agreement and Indenture have been filed
as exhibits to the registration statement of which this Prospectus is a part.
The following summaries describe certain provisions which may appear in each
Agreement. The prospectus supplement for a series of securities will describe
any provision of the Agreement relating to such series that materially differs
from the description of the Agreement contained in this prospectus. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the related Agreements
for each trust fund and the related prospectus supplement. As used herein with
respect to any series, the term "certificate" or the term "note" refers to all
of the certificates or notes of that series, whether or not offered hereby and
by the related prospectus supplement, unless the context otherwise requires.
GENERAL
The certificates of each series, including any class of certificates not
offered hereby, will be issued in fully registered form only and will represent
the entire beneficial ownership interest in the trust fund created pursuant to
the related Agreement. The notes of each series, including any class of notes
not offered hereby, will be issued in fully registered form only and will
represent indebtedness of the trust
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fund created pursuant to the related Agreement. If so provided in the prospectus
supplement, any class of securities of any series may be represented by a
certificate or note (the "DTC Registered Securities") registered in the name of
a nominee of The Depository Trust Company ("DTC"). The interests of beneficial
owners of such securities will be represented by such entries on the records of
participating members of DTC. Definitive certificates or notes will be available
for such securities only under limited circumstances as provided in the related
prospectus supplement. Subject to any limitations described in the related
prospectus supplement, the securities will be transferable and exchangeable for
like securities of the same class and series in authorized denominations at the
corporate trust office of the trustee specified in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of securities, but the Depositor or the trustee or any agent of the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Each series of securities may consist of either:
o a single class of securities evidencing the entire beneficial
ownership of or indebtedness of the related trust fund;
o two or more classes of securities evidencing the entire
beneficial ownership of or indebtedness of the related trust
fund, one or more classes of which ("Senior Securities") will be
senior in right of payment to one or more of the other classes
("Subordinate Securities") to the extent described in the related
prospectus supplement (any such series, a "Senior/Subordinate
Series");
o two or more classes of securities, one or more classes of which
("Strip Securities") are entitled to (a) principal distributions,
with disproportionate, nominal or no interest distributions or
(b) interest distributions, with disproportionate, nominal or no
principal distributions;
o two or more classes of securities which differ as to timing,
sequential order, priority of payment, security interest rate or
amount of distributions of principal or interest or both, or as
to which distributions of principal or interest or both on any
class may be made upon the occurrence of specified events, in
accordance with a schedule or formula, or on the basis of
collections from designated portions of the mortgage pool, which
series may include one or more classes of securities ("Accrual
Securities"), as to which certain accrued interest will not be
distributed but rather will be added to the principal balance of
the security on each distribution date, as hereinafter defined,
in the manner described in the related prospectus supplement; and
o other types of classes of securities, as described in the related
prospectus supplement.
With respect to any series of notes, the Equity Certificates, insofar as
they represent the beneficial ownership interest in the Issuer, will be
subordinate to the related notes. If so specified in the related prospectus
supplement, partial or full protection against certain mortgage loan defaults
and losses may be provided to a series of securities or to one or more classes
of securities in such series in the form of subordination of one or more other
classes of securities in such series or by one or more other types of credit
support, such as a letter of credit, reserve fund, insurance policy or a
combination thereof (any such coverage, "credit support"). SEE "DESCRIPTION OF
CREDIT SUPPORT".
Each class of securities, other than certain Strip Securities, will have
a stated principal amount (a "Principal Balance") and, unless otherwise provided
in the related prospectus supplement, will be entitled to payments of interest
thereon based on a fixed, variable or adjustable interest rate (a "Security
Interest Rate"). The Security Interest Rate of each security offered hereby will
be stated in the related prospectus
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supplement as the "Pass-Through Rate" with respect to a certificate and the
"Note Interest Rate" with respect to a note. SEE "INTEREST ON THE SECURITIES"
AND "PRINCIPAL OF THE SECURITIES" BELOW. The specific percentage ownership
interest of each class of securities and the minimum denomination for each
security will be set forth in the related prospectus supplement.
As to each series of certificates, one or more elections may be made to
treat the related trust fund or designated portions of the trust fund as a "real
estate mortgage investment conduit" or "REMIC" as defined in the Internal
Revenue Code of 1986 (the "Code"). The related prospectus supplement will
specify whether a REMIC election is to be made and the terms and conditions
applicable to the making of a REMIC election, as well as any material federal
income tax consequences to securityholders not otherwise described herein. If
such an election is made with respect to a series of certificates, one of the
classes of certificates comprising such series will be designated as evidencing
all "residual interests" in the related REMIC as defined under the Code. All
other classes of certificates in such a series will constitute "regular
interests" in the related REMIC as defined in the Code. As to each series of
certificates with respect to which a REMIC election is to be made, the master
servicer or the trustee will be obligated to take all actions required in order
to comply with applicable laws and regulations and, unless otherwise provided in
the related prospectus supplement, will be obligated to pay any Prohibited
Transaction Taxes or Contribution Taxes arising out of a breach of its
obligations with respect to such compliance without any right of reimbursement
therefor from the trust fund or from any securityholder. Unless otherwise
provided in the related prospectus supplement, a Prohibited Transaction Tax or
Contribution Tax resulting from any other cause will be charged against the
related trust fund, resulting in a reduction in amounts otherwise distributable
to securityholders. SEE "FEDERAL INCOME TAX CONSEQUENCES--REMICS-- PROHIBITED
TRANSACTIONS TAX AND OTHER TAXES".
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of any series of securities, the Depositor will
cause the pool of mortgage loans to be included in the related trust fund to be
assigned to the trustee, together with all principal and interest received by or
on behalf of the Depositor on or with respect to such mortgage loans after the
close of business on the first day of the month of formation of the related
trust fund (the "Cut-off Date"), other than principal and interest due on or
before the Cut-off Date and other than any Retained Interest. The trustee will,
concurrently with such assignment, deliver the securities to the Depositor in
exchange for the trust fund. Each mortgage loan will be identified in a schedule
appearing as an exhibit to the related Pooling and Servicing Agreement or
Servicing Agreement. Such schedule will include information as to the
outstanding principal balance of each mortgage loan after application of
payments due on the Cut-off Date, as well as information regarding the interest
rate on the mortgage loan, the interest rate net of the sum of the rates at
which the servicing fees and the Retained Interest, if any, are calculated, the
Retained Interest, if any, the current scheduled monthly payment of principal
and interest, the maturity of the Mortgage Note, the Value of the Mortgaged
Property, the Loan-to-Value Ratio at origination and certain other information
with respect to the mortgage loans.
In addition, the Depositor will, with respect to each mortgage loan,
deliver or cause to be delivered to the trustee, or to the custodian hereinafter
referred to:
(1) With respect to each Single-Family Loan, the Mortgage Note
endorsed, without recourse, to the order of the trustee, the Mortgage
with evidence of recording indicated thereon and an assignment of the
Mortgage to the trustee in recordable form. If, however, a mortgage loan
has not yet been returned from the public recording office, the
Depositor will deliver or cause to be delivered a copy of such Mortgage
together with its certificate that the original of such Mortgage was
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delivered to such recording office. Unless otherwise provided in the
related prospectus supplement, the Depositor will promptly cause the
assignment of each related mortgage loan to be recorded in the
appropriate public office for real property records, except in the State
of California or in other states where, in the opinion of counsel
acceptable to the trustee, such recording is not required to protect the
trustee's interest in the mortgage loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor,
the master servicer, the relevant mortgage loan seller or any other
prior holder of the mortgage loan.
(2) With respect to each Cooperative Loan, the Cooperative Note,
the original security agreement, the proprietary lease or occupancy
agreement, the related stock certificate and related stock powers
endorsed in blank, and a copy of the original filed financing statement
together with an assignment thereof to the trustee in a form sufficient
for filing. Unless otherwise provided in the related prospectus
supplement, the Depositor will promptly cause the assignment and
financing statement of each related Cooperative Loan to be filed in the
appropriate public office, except in states where in the opinion of
counsel acceptable to the trustee, such filing is not required to
protect the trustee's interest in the Cooperative Loan against the claim
of any subsequent transferee or any successor to or creditor of the
Depositor, the master servicer, the relevant mortgage loan seller or any
prior holder of the Cooperative Loan.
(3) With respect to each Contract, the original Contract
endorsed, without recourse, to the order of the trustee and copies of
documents and instruments related to the Contract and the security
interest in the Manufactured Home securing the Contract, together with a
blanket assignment to the trustee of all Contracts in the related trust
fund and such documents and instruments. In order to give notice of the
right, title and interest of the Securityholders to the Contracts, the
Depositor will cause to be executed and delivered to the trustee a UCC-1
financing statement identifying the trustee as the secured party and
identifying all Contracts as collateral.
With respect to any mortgage loan secured by a Mortgaged Property
located in Puerto Rico (a "Puerto Rico Mortgage Loan"), the Mortgages with
respect to such mortgage loans either (a) secure a specific obligation for the
benefit of a specified person (a "Direct Puerto Rico Mortgage") or (b) secure an
instrument transferable by endorsement (an "Endorsable Puerto Rico Mortgage").
Endorsable Puerto Rico Mortgages do not require an assignment to transfer the
related lien. Rather, transfer of such mortgages follows an effective
endorsement of the related Mortgage Note and, therefore, delivery of the
assignment referred to in paragraph (1) above would be inapplicable. Direct
Puerto Rico Mortgages, however, require an assignment to be recorded with
respect to any transfer of the related lien and such assignment would be
delivered to the trustee.
The trustee, or the custodian, will review the mortgage loan documents
within 45 days after receipt, and the trustee, or the custodian, will hold the
mortgage loan documents in trust for the benefit of the securityholders. Unless
otherwise specified in the related prospectus supplement, if any such document
is found to be missing or defective in any material respect, the trustee, or
such custodian, shall immediately notify the master servicer and the Depositor,
and the master servicer shall immediately notify the relevant mortgage loan
seller. If the mortgage loan seller cannot cure the omission or defect within 60
days after receipt of such notice, the mortgage loan seller will be obligated,
within 90 days of receipt of such notice, to repurchase the related mortgage
loan from the trustee at the Purchase Price or substitute for such mortgage
loan. There can be no assurance that a mortgage loan seller will fulfill this
repurchase or substitution obligation. Although the master servicer is obligated
to use its best efforts to enforce such obligation to the extent described above
under "Mortgage Loan Program-Representations by or on behalf of mortgage loan
sellers; Repurchases", neither the master servicer nor the Depositor will be
obligated to
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repurchase or substitute for such mortgage loan if the mortgage loan seller
defaults on its obligation. Unless otherwise specified in the related prospectus
supplement, the assignment of the mortgage loans to the trustee will be without
recourse to the Depositor and this repurchase or substitution obligation
constitutes the sole remedy available to the securityholders or the trustee for
omission of, or a material defect in, a constituent document.
With respect to the mortgage loans in a trust fund, the Depositor will
make representations and warranties as to the types and geographical
concentration of such mortgage loans and as to the accuracy in all material
respects of certain identifying information furnished to the trustee in respect
of each such mortgage loan (e.g., original Loan-to-Value Ratio, principal
balance as of the Cut-off Date, Interest Rate, Net Interest Rate and maturity).
In addition, unless otherwise specified in the related prospectus supplement,
the Depositor will represent and warrant that, as of the Cut-off Date for the
related series of securities, no mortgage loan was currently more than 30 days
delinquent as to payment of principal and interest and no mortgage loan was more
than 30 days delinquent more than once during the previous 12 months. Upon a
breach of any such representation of the Depositor that materially and adversely
affects the value of a mortgage loan or the interests of the securityholders in
the mortgage loan, the Depositor will be obligated either to cure the breach in
all material respects, repurchase the mortgage loan at the Purchase Price or
substitute for such mortgage loan as described below.
Unless otherwise provided in the related prospectus supplement, if the
Depositor discovers or receives notice of any breach of its representations or
warranties with respect to a mortgage loan, the Depositor may, rather than
repurchase the mortgage loan as provided above, remove such mortgage loan from
the trust fund (a "Deleted Mortgage Loan") and substitute in its place one or
more mortgage loans (each, a "Substitute Mortgage Loan"), but only if (a) with
respect to a trust fund for which a REMIC election is to be made, such
substitution is effected within two years of the date of initial issuance of the
certificates, plus permissible extensions, or (b) with respect to a trust fund
for which no REMIC election is to be made, such substitution is effected within
120 days of the date of initial issuance of the securities. Except as otherwise
provided in the related prospectus supplement, any Substitute Mortgage Loan
will, on the date of substitution, (1) have an outstanding principal balance,
after deduction of all scheduled payments due in the month of substitution, not
in excess of, and not more than $10,000 less than, the outstanding principal
balance, after deduction of all unpaid scheduled payments due as of the date of
substitution, of the Deleted Mortgage Loan, (2) have an Interest Rate not less
than (and not more than 1% greater than) the Interest Rate of the Deleted
Mortgage Loan, (3) have a Net Interest Rate not less than to the Net Interest
Rate of the Deleted Mortgage Loan, (4) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Deleted Mortgage
Loan (5) have a Lockout Date, if applicable, not earlier than the Lockout Date
on the Deleted Mortgage Loan and (6) comply with all of the representations and
warranties set forth in the Agreement as of the date of substitution. In
connection with any substitution, an amount equal to the difference between the
Purchase Price of the Deleted Mortgage Loan and the outstanding principal
balance of the Substitute Mortgage Loan (after deduction of all scheduled
payments due in the month of substitution), together with one month's interest
at the applicable Net Interest Rate on such balance, will be deposited in the
Certificate Account and distributed to securityholders on the first distribution
date following the Prepayment Period in which the substitution occurred. In the
event that one mortgage loan is substituted for more than one Deleted Mortgage
Loan, or more than one mortgage loan is substituted for one or more Deleted
Mortgage Loans, then the amount described in clause (1) will be determined on
the basis of aggregate principal balances, the rates described in clauses (2)
and (3) with respect to Deleted Mortgage Loans will be determined on the basis
of weighted average Interest Rates and Net Interest Rates, as the case may be,
and the terms described in clause (4) will be determined on the basis of
weighted average remaining terms to maturity
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and the Lockout Dates described in clause (5) will be determined on the basis of
weighted average Lockout Dates.
With respect to any series as to which credit support is provided by
means of a mortgage pool insurance policy, in addition to making the
representations and warranties described above, the Depositor or the related
mortgage loan seller (or another party on behalf of the related mortgage loan
seller), as specified in the related prospectus supplement, will represent and
warrant to the trustee that no action has been taken or failed to be taken, no
event has occurred and no state of facts exists or has existed on or prior to
the date of the initial issuance of the securities which has resulted or will
result in the exclusion from, denial of or defense to coverage under any
applicable primary mortgage insurance policy, FHA insurance policy, mortgage
pool insurance policy, special hazard insurance policy or bankruptcy bond,
irrespective of the cause of such failure of coverage but excluding any failure
of an insurer to pay by reason of the insurer's own breach of its insurance
policy or its financial inability to pay (such representation being referred to
herein as the "insurability representation"). SEE "DESCRIPTION OF PRIMARY
INSURANCE POLICIES" AND "DESCRIPTION OF CREDIT SUPPORT" HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT FOR INFORMATION REGARDING THE EXTENT OF COVERAGE
UNDER THE AFOREMENTIONED INSURANCE POLICIES. Upon a breach of the insurability
representation which materially and adversely affects the interests of the
securityholders in a mortgage loan, the Depositor or the mortgage loan seller,
as the case may be, will be obligated either to cure the breach in all material
respects or to purchase such mortgage loan at the Purchase Price, subject to the
limitations specified in the related prospectus supplement. The related
prospectus supplement may provide that the performance of an obligation to
repurchase mortgage loans following a breach of an insurability representation
will be ensured in the manner specified in the prospectus supplement.
The obligation to repurchase or, other than with respect to the
insurability representation if applicable, to substitute mortgage loans as
described above constitutes the sole remedy available to the securityholders or
the trustee for any breach of the above described representations.
The master servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Pooling and Servicing Agreement or Servicing Agreement.
Upon a breach of any such representation of the master servicer which materially
and adversely affects the interests of the securityholders, the master servicer
will be obligated to cure the breach in all material respects.
DEPOSITS TO CERTIFICATE ACCOUNT
The master servicer and/or the trustee will, as to each trust fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related trust fund
assets. Such accounts are collectively referred to in this prospectus and the
related prospectus supplement as the "Certificate Account". The Certificate
Account must be either (a) maintained with a bank or trust company, and in a
manner, satisfactory to the Rating Agency or Agencies rating any class of
securities of such series or (b) an account or accounts the deposits in which
are insured by the BIF or the SAIF (to the limits established by the FDIC) and
the uninsured deposits in which are otherwise secured such that the
Securityholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the institution with which the Certificate Account is
maintained. The collateral eligible to secure amounts in the Certificate Account
is limited to United States government securities and other high-quality
investments specified in the related Agreement as "Permitted Investments." A
Certificate Account may be maintained as an
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interest bearing or a non-interest bearing account, or the funds held in the
Certificate Account may be invested pending each succeeding distribution date in
Permitted Investments. Unless otherwise provided in the related prospectus
supplement, any interest or other income earned on funds in the Certificate
Account will be paid to the master servicer or the trustee or their designee as
additional compensation. The Certificate Account may be maintained with an
institution that is an affiliate of the master servicer or the trustee, provided
that such institution meets the standards set forth above. If permitted by the
Rating Agency or Agencies and so specified in the related prospectus supplement,
a Certificate Account may contain funds relating to more than one series of
pass-through certificates and may, if applicable, contain other funds respecting
payments on mortgage loans belonging to the master servicer or serviced or
master serviced by it on behalf of others.
Each sub-servicer servicing a mortgage loan pursuant to a sub-servicing
agreement will establish and maintain one or more separate accounts which may be
interest bearing and which will comply with the standards with respect to
Certificate Accounts set forth above or such other standards as may be
acceptable to the master servicer (collectively, the "Sub-Servicing Account").
The sub-servicer is required to credit to the related Sub-Servicing Account on a
daily basis the amount of all proceeds of mortgage loans received by the
sub-servicer, less its servicing compensation. The sub-servicer shall remit to
the master servicer by wire transfer of immediately available funds all funds
held in the Sub- Servicing Account with respect to each mortgage loan on the
monthly remittance date or dates specified in the related Agreement.
PAYMENTS ON MORTGAGE LOANS
The master servicer will deposit or cause to be deposited in the
Certificate Account for each trust fund including mortgage loans on a daily
basis, unless otherwise provided in the related Agreement and described in the
related prospectus supplement, the following payments and collections received,
or advances made, by the master servicer or on its behalf subsequent to the
Cut-off Date, other than payments due on or before the Cut-off Date, and
exclusive of any amounts representing a Retained Interest:
(1) all payments on account of principal, including
principal prepayments, on the mortgage loans;
(2) all payments on account of interest on the mortgage
loans, net of any portion retained by the master servicer or by a
sub-servicer as its servicing compensation and net of any Retained
Interest;
(3) all proceeds of the hazard insurance policies and any
special hazard insurance policy, to the extent such proceeds are not
applied to the restoration of the property or released to the mortgagor
in accordance with the normal servicing procedures of the master
servicer or the related sub-servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note, any primary
mortgage insurance policy, any FHA insurance policy, any VA guarantee,
any bankruptcy bond and any mortgage pool insurance policy
(collectively, "Insurance Proceeds") and all other amounts received and
retained in connection with the liquidation of defaulted mortgage loans,
by foreclosure or otherwise ("Liquidation Proceeds"), together with the
net proceeds on a monthly basis with respect to any Mortgaged Properties
acquired for the benefit of securityholders by foreclosure or by deed in
lieu of foreclosure or otherwise;
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(4) any amounts required to be paid under any letter of
credit, as described below under "Description of credit support--Letter
of Credit";
(5) any advances made as described below under "Advances in
respect of Delinquencies";
(6) if applicable, all amounts required to be transferred to
the Certificate Account from a reserve fund, as described below under
"Description of credit support--Reserve Funds";
(7) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be deposited in the Certificate Account as
described below;
(8) all proceeds of any mortgage loan or property in respect
of the mortgage loan purchased by the master servicer, the Depositor,
any sub-servicer or any mortgage loan seller as described under
"Mortgage Loan Program-Representations by or on behalf of Mortgage Loan
Sellers; Repurchases" or "--Assignment of trust fund assets" above,
exclusive of the Retained Interest, if any, in respect of such mortgage
loan, and all proceeds of any mortgage loan repurchased as described
under "Termination" below;
(9) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance
policy described under "Description of Primary Insurance
Policies--Primary Hazard Insurance Policies"; and
(10) any amount required to be deposited by the master
servicer in connection with losses realized on investments for the
benefit of the master servicer of funds held in the Certificate Account.
With respect to each Buydown Mortgage Loan, the master servicer, or a
sub-servicer, will deposit related Buydown Funds in a custodial account, which
may be interest bearing, and that otherwise meets the standards for Certificate
Accounts set forth above (a "Buydown Account"). Unless otherwise specified in
the related prospectus supplement, the terms of all Buydown Mortgage Loans
provide for the contribution of Buydown Funds in an amount not less than either
(a) the total payments to be made from such funds pursuant to the related
buydown plan or (b) if such Buydown Funds are present valued, that amount that,
together with investment earnings thereon at a specified rate, compounded
monthly, will support the scheduled level of payments due under the Buydown
Mortgage Loan. Neither the master servicer, the sub-servicer nor the Depositor
will be obligated to add to such Buydown Funds any of its own funds should
investment earnings prove insufficient to maintain the scheduled level of
payments. To the extent that any such insufficiency is not recoverable from the
borrower, distributions to securityholders will be affected. With respect to
each Buydown Mortgage Loan, the master servicer will deposit in the Certificate
Account the amount, if any, of the Buydown Funds (and, if applicable, investment
earnings thereon) for each Buydown Mortgage Loan that, when added to the amount
due from the borrower on such Buydown Mortgage Loan, equals the full monthly
payment which would be due on the Buydown Mortgage Loan if it were not subject
to the buydown plan.
Unless otherwise specified in the related prospectus supplement, in the
event a Buydown Mortgage Loan is prepaid in full or liquidated, the related
Buydown Funds will be applied as follows. If the mortgagor on a Buydown Mortgage
Loan prepays such loan in its entirety during the Buydown Period, the master
servicer will withdraw from the Buydown Account and remit to the mortgagor in
accordance with the related buydown plan any Buydown Funds remaining in the
Buydown Account. If a prepayment by a mortgagor during the Buydown Period
together with Buydown Funds will result in a prepayment in
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full, the master servicer will withdraw from the Buydown Account for deposit in
the Certificate Account the Buydown Funds and investment earnings thereon, if
any, which together with such prepayment will result in a prepayment in full. If
the mortgagor defaults during the Buydown Period with respect to a Buydown
Mortgage Loan and the Mortgaged Property is sold in liquidation, either by the
master servicer or the insurer under any related insurance policy, the master
servicer will withdraw from the Buydown Account the Buydown Funds and all
investment earnings thereon, if any, for deposit in the Certificate Account or
remit the same to the insurer if the Mortgaged Property is transferred to such
insurer and such insurer pays all of the loss incurred in respect of such
default. In the case of any such prepaid or defaulted Buydown Mortgage Loan the
Buydown Funds in respect of which were supplemented by investment earnings, the
master servicer will withdraw from the Buydown Account and either deposit in the
Certificate Account or remit to the borrower, depending upon the terms of the
buydown plan, any investment earnings remaining in the related Buydown Account.
Any Buydown Funds, and any investment earnings thereon, deposited in the
Certificate Account in connection with a full prepayment of the related Buydown
Mortgage Loan will be deemed to reduce the amount that would be required to be
paid by the borrower to repay fully the related mortgage loan if the mortgage
loan were not subject to the buydown plan.
DISTRIBUTIONS
Distributions allocable to principal and interest on the securities of
each series will be made by or on behalf of the trustee each month on each date
as specified in the related prospectus supplement and referred to as a
"distribution date", commencing with the month following the month in which the
applicable Cut-off Date occurs. Except as otherwise specified in the related
prospectus supplement, distributions will be made to the persons in whose names
the securities are registered at the close of business on the last business day
of the month preceding the month in which the distribution date occurs (the
"Record Date"), and the amount of each distribution will be determined as of the
close of business on the date specified in the related prospectus supplement and
referred to as the "Determination Date". All distributions with respect to each
class of securities on each distribution date will be allocated pro rata among
the outstanding securities in such class. Payments to the holders of securities
of any class on each distribution date will be made to the securityholders of
the respective class of record on the next preceding Record Date, other than in
respect of the final distribution, based on the aggregate fractional undivided
interests in that class represented by their respective securities. Payments
will be made either by wire transfer in immediately available funds to the
account of a securityholder at a bank or other entity having appropriate
facilities therefor, if such securityholder has so notified the Depositor or its
designee no later than the date specified in the related prospectus supplement
and, if so provided in the related prospectus supplement, holds securities in
the requisite amount specified therein, or by check mailed to the address of the
person entitled thereto as it appears on the security register maintained by the
depositor or its agent; provided, however, that the final distribution in
retirement of the securities will be made only upon presentation and surrender
of the securities at the office or agency of the Depositor or its agent
specified in the notice to securityholders of such final distribution. With
respect to each series of Certificate or notes, the security register will be
referred to as the "certificate register" or "note register", respectively.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the securities of each series on each distribution
date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related
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prospectus supplement. Unless provided otherwise in the related prospectus
supplement, the "Available Distribution Amount" for each distribution date
equals the sum of the following amounts:
(1) the total amount of all cash on deposit in the related
Certificate Account as of the corresponding Determination Date,
exclusive of:
(a) all scheduled payments of principal and interest
collected but due on a date subsequent to the related Due Period.
Unless the related prospectus supplement provides otherwise, a
"Due Period" with respect to any distribution date will commence
on the second day of the month in which the immediately preceding
distribution date occurs, or the day after the Cut-off Date in
the case of the first Due Period, and will end on the first day
of the month of the related distribution date,
(b) all prepayments, together with related payments
of the interest thereon, Liquidation Proceeds, Insurance Proceeds
and other unscheduled recoveries received subsequent to the
related Prepayment Period, and
(c) all amounts in the Certificate Account that are
due or reimbursable to the Depositor, the trustee, a mortgage
loan seller, a sub-servicer or the master servicer or that are
payable in respect of certain expenses of the related trust fund;
(2) if the related prospectus supplement so provides,
interest or investment income on amounts on deposit in the Certificate
Account;
(3) all advances with respect to such distribution date;
(4) if and to the extent the related prospectus supplement
so provides, amounts paid with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(5) to the extent not on deposit in the related Certificate
Account as of the corresponding Determination Date, any amounts
collected under, from or in respect of any credit support with respect
to such distribution date.
As described below, the entire Available Distribution Amount will be
distributed among the related securities, including any securities not offered
hereby, on each distribution date, and accordingly will be released from the
trust fund and will not be available for any future distributions.
INTEREST ON THE SECURITIES
Each class of securities, other than certain classes of Strip
Securities, may have a different Security Interest Rate, which may be a fixed,
variable or adjustable Security Interest Rate. The related prospectus supplement
will specify the Security Interest Rate for each class, or, in the case of a
variable or adjustable Security Interest Rate, the method for determining the
Security Interest Rate. Unless otherwise specified in the related prospectus
supplement, interest on the securities will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
With respect to each series of securities and each distribution date,
the "Accrued Security Interest" distributable on each security, other than
certain classes of Strip Securities, will be equal to one month's interest on
the outstanding Principal Balance of the security immediately prior to the
distribution date, at
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the applicable Security Interest Rate, subject to the following. With respect to
each series of certificates or notes, the Accrued Security Interest will be
referred to as the "Accrued Certificate Interest" or "Accrued Note Interest",
respectively. As to each Strip Security with no or, in certain cases, a nominal
Principal Balance, the Accrued Security Interest with respect to any
distribution date will be on the basis of a notional amount and equal one
month's Stripped Interest. Unless otherwise specified in the related prospectus
supplement, the Accrued Security Interest on each security of a series will be
reduced in the event of shortfalls in collections of interest resulting from
prepayments on mortgage loans, with that shortfall allocated among all of the
securities of that series in the manner specified in the related prospectus
supplement. SEE "YIELD CONSIDERATIONS".
PRINCIPAL OF THE SECURITIES
Unless the related prospectus supplement provides otherwise, each
security will have a "Principal Balance" which, at any time, will equal the
maximum amount that the holder will be entitled to receive in respect of
principal out of the future cash flow on the trust fund assets and other assets
included in the related trust fund. The Principal Balance of each security
offered hereby will be stated in the related prospectus supplement as the
"Certificate Principal Balance" with respect to a certificate and the "Note
Balance" with respect to a note. With respect to each such security,
distributions generally will be applied to undistributed accrued interest
thereon, and thereafter to principal. The outstanding Principal Balance of a
security will be reduced to the extent of distributions of principal thereon,
and in the case of securities evidencing an interest in mortgage loans, by the
amount of any Realized Losses, as defined below, allocated thereto. Unless the
related prospectus supplement provides otherwise, the initial aggregate
Principal Balance of all classes of securities of a series will equal the
outstanding aggregate principal balance of the related trust fund assets as of
the applicable Cut-off Date. The initial aggregate Principal Balance of a series
and each class of securities related to a series will be specified in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, distributions of principal will be made on each
distribution date to the class or classes of securities entitled thereto until
the Principal Balance of such class has been reduced to zero. With respect to a
Senior/Subordinate Series, unless otherwise provided in the related prospectus
supplement, distributions allocable to principal of a class of securities will
be based on the percentage interest in the related trust fund evidenced by such
class (with respect to the Senior Securities, the "Senior Percentage"), which in
turn will be based on the Principal Balance of such class as compared to the
Principal Balance of all classes of securities of such series. Distributions of
principal of any class of securities will be made on a pro rata basis among all
of the securities of such class. Strip Securities with no Principal Balance will
not receive distributions of principal.
ALLOCATION OF LOSSES
With respect to any defaulted mortgage loan that is finally liquidated,
through foreclosure sale or otherwise (a "Liquidated Loan"), the amount of the
Realized Loss incurred in connection with such liquidation will equal the
excess, if any, of the unpaid principal balance of the Liquidated Loan
immediately prior to liquidation, over the aggregate amount of Liquidation
Proceeds derived from such liquidation remaining after application of such
proceeds to unpaid accrued interest on the Liquidated Loan and to reimburse the
master servicer or any sub-servicer for related unreimbursed servicing expenses.
With respect to certain mortgage loans the principal balances of which have been
reduced in connection with bankruptcy proceedings, the amount of such reduction
(a "Deficient Valuation") also will be treated as a Realized Loss. As to any
series of securities other than a Senior/Subordinate Series, unless specified
otherwise in the related prospectus supplement, any Realized Loss not covered as
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described under "Description of Credit Support" will be allocated among all of
the securities on a pro rata basis.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of securities evidencing interests in a trust
fund consisting of mortgage loans, other than a Senior/Subordinate Series,
unless otherwise provided in the related prospectus supplement, the master
servicer will advance on or before each distribution date its own funds or funds
held in the Certificate Account that are not included in the Available
Distribution Amount for such distribution date, in an amount equal to the
aggregate of payments of principal and interest, net of related servicing fees
and Retained Interest, that were due during the related Due Period and were
delinquent on the related Determination Date, subject to the master servicer's
good faith determination that such advances will be reimbursable from Related
Proceeds (as defined below). SEE "DESCRIPTION OF PRIMARY INSURANCE POLICIES" AND
"DESCRIPTION OF CREDIT SUPPORT".
With respect to any Senior/Subordinate Series, unless otherwise provided
in the related prospectus supplement, the master servicer will advance on each
distribution date its own funds or funds held in the Certificate Account which
are not included in the Available Distribution Amount for such distribution
date, in an aggregate amount equal to the lesser of (a) the total of all amounts
required to be distributed on each class of Senior Securities and Strip
Securities, if any, on such distribution date which remain after applying
towards such payment the entire Available Distribution Amount, including funds
otherwise payable to the Subordinate Securityholders but excluding such advance,
and (b) the aggregate of payments of principal and interest (net of related
servicing fees and Retained Interest) that were due during the related Due
Period and were delinquent on the related Determination Date. Alternatively, for
a Senior/Subordinate Series, the master servicer may be obligated to make
advances in the manner provided in the preceding paragraph. In either case, the
master servicer will, unless the related prospectus supplement provides
otherwise, be obligated to make such advances regardless of recoverability from
the related mortgage loans to the extent that the Principal Balance of the
Subordinate Securities is greater than zero. Thereafter, such advances are
required to be made only to the extent they are deemed by the master servicer to
be recoverable from Related Proceeds, unless otherwise specified in the related
prospectus supplement. SEE "DESCRIPTION OF PRIMARY INSURANCE POLICIES" AND
"DESCRIPTION OF CREDIT SUPPORT".
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of securities entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related prospectus supplement, advances of the master servicer's
funds will be reimbursable only out of related recoveries on the mortgage loans
(including amounts received under any form of credit support) respecting which
such advances were made (as to any mortgage loan, "Related Proceeds") and, in
the case of a Senior/Subordinate Series, out of any amounts otherwise
distributable on the Subordinate Securities of such series; provided, however,
that any such advance will be reimbursable from any amounts in the Certificate
Account to the extent that the master servicer shall determine that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds
and, in the case of a Senior/Subordinate Series, the Principal Balance of the
Subordinate Securities has been reduced to zero. If advances have been made by
the master servicer from excess funds in the Certificate Account, the master
servicer will replace such funds in the Certificate Account on any future
distribution date to the extent that funds in the Certificate Account on such
distribution date are less than payments required to be made to securityholders
on such date. If so specified in the related prospectus supplement, the
obligations of the master servicer to make advances may be secured by a cash
advance reserve fund or a surety bond. If applicable, information regarding the
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characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
REPORTS TO SECURITYHOLDERS
With each distribution to holders of any class of securities of a
series, the master servicer or the trustee, will forward or cause to be
forwarded to each such holder, to the Depositor and to such other parties as may
be specified in the related Agreement, a statement setting forth:
(1) the amount of such distribution to holders of
securities of such class applied to reduce the Principal Balance of such
securities;
(2) the amount of such distribution to holders of
securities of such class allocable to Accrued Security Interest;
(3) the amount of related administration or servicing
compensation received by the trustee or the master servicer and any
sub-servicer and such other customary information as the master servicer
deems necessary or desirable, or that a securityholder reasonably
requests, to enable securityholders to prepare their tax returns;
(4) if applicable, the aggregate amount of advances
included in such distribution, and the aggregate amount of unreimbursed
advances at the close of business on such distribution date;
(5) the aggregate Stated Principal Balance of the
mortgage loans at the close of business on such distribution date;
(6) the number and aggregate Stated Principal Balance
of mortgage loans (a) delinquent one month, (b) delinquent two or more
months, and (c) as to which foreclosure proceedings have been commenced;
(7) with respect to any Mortgaged Property acquired
on behalf of securityholders through foreclosure or deed in lieu of
foreclosure during the preceding calendar month, the Stated Principal
Balance of the related mortgage loan as of the close of business on the
distribution date in such month;
(8) the book value of any Mortgaged Property acquired
on behalf of securityholders through foreclosure or deed in lieu of
foreclosure as of the close of business on the last business day of the
calendar month preceding the distribution date;
(9) the aggregate Principal Balance of each class of
securities (including any class of securities not offered hereby) at the
close of business on such distribution date, separately identifying any
reduction in such Principal Balance due to the allocation of any
Realized Loss;
(10) the Special Hazard Subordination Amount, if any,
at the close of business on such distribution date;
(11) the aggregate amount of principal prepayments
made and Realized Losses incurred during the related Prepayment Period;
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(12) the amount deposited in the Reserve Fund, if any,
on such distribution date;
(13) the amount remaining in the Reserve Fund, if any,
as of the close of business on such distribution date;
(14) the aggregate unpaid Accrued Security Interest,
if any, on each class of securities at the close of business on such
distribution date;
(15) in the case of securities with a variable
Security Interest Rate, the Security Interest Rate applicable to such
distribution date, as calculated in accordance with the method specified
in the related prospectus supplement;
(16) in the case of securities with an adjustable
Security Interest Rate, for statements to be distributed in any month in
which an adjustment date occurs, the adjustable Security Interest Rate
applicable to the next succeeding distribution date as calculated in
accordance with the method specified in the related prospectus
supplement; and
(17) as to any series which includes credit support,
the amount of coverage of each instrument of credit support included in
the trust fund as of the close of business on such distribution date.
In the case of information furnished pursuant to subclauses (1)-(3)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of securities or for such other specified portion thereof. With
respect to each series of certificates or notes, securityholders will be
referred to as the "certificateholders" or the "noteholders", respectively.
Within a reasonable period of time after the end of each calendar year,
the master servicer or the trustee, as provided in the related prospectus
supplement, shall furnish to each person who at any time during the calendar
year was a holder of a security a statement containing the information set forth
in subclauses (1)-(3) above, aggregated for such calendar year or the applicable
portion thereof during which such person was a securityholder. Such obligation
of the master servicer or the trustee shall be deemed to have been satisfied to
the extent that substantially comparable information shall be provided by the
master servicer or the trustee pursuant to any requirements of the Code as are
from time to time in force.
COLLECTION AND OTHER SERVICING PROCEDURES
The master servicer, directly or through sub-servicers, will make
reasonable efforts to collect all scheduled payments under the mortgage loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the mortgage loans
and held for its own account, provided such procedures are consistent with the
related Pooling and Servicing Agreement or Servicing Agreement and any related
insurance policy, bankruptcy bond, letter of credit or other instrument
described under "Description of Primary Insurance Policies" or "Description of
Credit Support" (any such instrument providing coverage as to losses resulting
from physical damage, a "Hazard Insurance Instrument", any such instrument
providing coverage as to credit or other risks, a "Credit Insurance Instrument",
and collectively, the "Insurance Instruments"). Consistent with the above, the
master servicer may, in its discretion, waive any late payment charge in respect
of a late mortgage loan payment and, only upon determining that the coverage
under any related Insurance Instrument will
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not be affected, extend or cause to be extended the due dates for payments due
on a Mortgage Note for a period not greater than 180 days.
In certain instances in which a mortgage loan is in default, or if
default is reasonably foreseeable, and if determined by the master servicer to
be in the best interests of the related Securityholders, the master servicer may
permit certain modifications of the mortgage loan rather than proceeding with
foreclosure. In making such determination, the estimated Realized Loss that
might result if such mortgage loan were liquidated would be taken into account.
Such modifications may have the effect of reducing the Interest Rate, forgiving
the payment of principal or interest or extending the final maturity date of the
mortgage loan. Any such modified Mortgage Loan may remain in the related trust
fund, and the reduction in collections resulting from such modification may
result in reduced distributions of interest, or other amounts, on, or may extend
the final maturity of, one or more classes of the related securities.
In connection with any significant partial prepayment of a mortgage
loan, the master servicer, to the extent not inconsistent with the terms of the
Mortgage Note and local law and practice, may permit the mortgage loan to be
reamortized such that the monthly payment is recalculated as an amount that will
fully amortize the remaining principal amount of the mortgage loan by the
original maturity date based on the original Interest Rate, provided that such
reamortization shall not be permitted if it would constitute a modification of
the mortgage loan for federal income tax purposes.
In any case in which property securing a mortgage loan, other than an
ARM Loan (as described below), has been, or is about to be, conveyed by the
borrower, the master servicer will, to the extent it has knowledge of such
conveyance, encumbrance, proposed conveyance or encumbrance, exercise or cause
to be exercised on behalf of the related trust fund the lender's rights to
accelerate the maturity of such mortgage loan under any due-on-sale or
due-on-encumbrance clause applicable thereto, but only if the exercise of any
such rights is permitted by applicable law and will not impair or threaten to
impair any recovery under any related Insurance Instrument. If these conditions
are not met or if the master servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale or due-on-encumbrance clause, the
master servicer will enter into or cause to be entered into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed or encumbered, pursuant to which such person becomes liable
under the Mortgage Note, Cooperative Note or Contract and, to the extent
permitted by applicable law, the borrower remains liable thereon. The original
mortgagor may be released from liability on a mortgage loan if the master
servicer shall have determined in good faith that such release will not
adversely affect the collectability of the mortgage loan. An ARM Loan may be
assumed if such ARM Loan is by its terms assumable and if, in the reasonable
judgment of the master servicer, the proposed transferee of the related
Mortgaged Property establishes its ability to repay the loan and the security
for such ARM Loan would not be impaired by the assumption. If a mortgagor
transfers the Mortgaged Property subject to an ARM Loan without consent, such
ARM Loan may be declared due and payable. Any fee collected by or on behalf of
the master servicer for entering into an assumption agreement will be retained
by or on behalf of the master servicer as additional servicing compensation. See
"Certain Legal Aspects of Mortgage Loans--Enforceability of Certain Provisions".
In connection with any such assumption, the terms of the related mortgage loan
may not be changed.
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SUB-SERVICING
Any master servicer may delegate its servicing obligations in respect of
the mortgage loans to third-party servicers (each, a "sub-servicer"), but such
master servicer will remain obligated under the related Pooling and Servicing
Agreement or Servicing Agreement. Each sub-servicer will be required to perform
the customary functions of a servicer of comparable loans, including collecting
payments from borrowers and remitting such collections to the master servicer;
maintaining primary hazard insurance as described herein and in any related
prospectus supplement, and filing and settling claims thereunder, subject in
certain cases to the right of the master servicer to approve in advance any such
settlement; maintaining escrow or impoundment accounts of borrowers for payment
of taxes, insurance and other items required to be paid by any borrower pursuant
to the mortgage loan; processing assumptions or substitutions, although, unless
otherwise specified in the related prospectus supplement, the master servicer is
generally required to exercise due-on-sale clauses to the extent such exercise
is permitted by law and would not adversely affect insurance coverage;
attempting to cure delinquencies; supervising foreclosures or repossessions;
inspecting and managing Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the mortgage loans. Unless otherwise
specified in the related prospectus supplement, the master servicer will be
responsible for filing and settling claims in respect of mortgage loans in a
particular mortgage pool under any applicable mortgage pool insurance policy,
bankruptcy bond, special hazard insurance policy or letter of credit. SEE
"DESCRIPTION OF CREDIT SUPPORT".
The sub-servicing agreement between any master servicer and a
sub-servicer will be consistent with the terms of the related Pooling and
Servicing Agreement or Servicing Agreement and will not result in a withdrawal
or downgrading of any class of securities issued pursuant to such Agreement.
Although each sub-servicing agreement will be a contract solely between the
master servicer and the sub-servicer, the Agreement pursuant to which a series
of securities is issued will provide that, if for any reason the master servicer
for such series of securities is no longer acting in such capacity, the trustee
or any successor master servicer must recognize the sub-servicer's rights and
obligations under such sub-servicing agreement.
The master servicer will be solely liable for all fees owed by it to any
sub-servicer, irrespective of whether the master servicer's compensation
pursuant to the related Agreement is sufficient to pay such fees. However, a
sub-servicer may be entitled to a Retained Interest in certain mortgage loans.
Each sub-servicer will be reimbursed by the master servicer for certain
expenditures which it makes, generally to the same extent the master servicer
would be reimbursed under the related Pooling and Servicing Agreement or
Servicing Agreement. SEE "DESCRIPTION OF THE SECURITIES--RETAINED INTEREST,
SERVICING COMPENSATION AND PAYMENT OF EXPENSES".
The master servicer may require any sub-servicer to agree to indemnify
the master servicer for any liability or obligation sustained by the master
servicer in connection with any act or failure to act by the sub-servicer in its
servicing capacity. Unless otherwise provided in the related prospectus
supplement, each sub-servicer is required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the master servicer.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
As servicer of the mortgage loans, the master servicer, on behalf of
itself, the trustee and the securityholders, will present claims to the insurer
under each Insurance Instrument, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
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defaulted mortgage loans. As set forth above, all collections by or on behalf of
the master servicer under any Insurance Instrument, other than amounts to be
applied to the restoration of a Mortgaged Property or released to the mortgagor,
are to be deposited in the Certificate Account for the related trust fund,
subject to withdrawal as heretofore described. Unless otherwise provided in the
prospectus supplement relating to a series of securities, the master servicer or
its designee will not receive payment under any letter of credit included as an
Insurance Instrument with respect to a defaulted mortgage loan unless all
Liquidation Proceeds and Insurance Proceeds which it deems to be finally
recoverable have been realized; however, the master servicer will be entitled to
reimbursement for any unreimbursed advances and reimbursable expenses
thereunder.
If any property securing a defaulted mortgage loan is damaged and
proceeds, if any, from the related Hazard Insurance Instrument are insufficient
to restore the damaged property to a condition sufficient to permit recovery
under the related Credit Insurance Instrument, if any, the master servicer is
not required to expend its own funds to restore the damaged property unless it
determines (a) that such restoration will increase the proceeds to
securityholders on liquidation of the mortgage loan after reimbursement of the
master servicer for its expenses and (b) that such expenses will be recoverable
by it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted mortgage loan under any related Credit
Insurance Instrument is not available for the reasons set forth in the preceding
paragraph, the master servicer nevertheless will be obligated to follow or cause
to be followed such normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted mortgage loan. If the proceeds of any
liquidation of the property securing the defaulted mortgage loan are less than
the outstanding principal balance of the defaulted mortgage loan plus interest
accrued thereon at the Interest Rate plus the aggregate amount of expenses
incurred by the master servicer in connection with such proceedings and which
are reimbursable under the Agreement, the trust fund will realize a loss in the
amount of such difference. The master servicer will be entitled to withdraw or
cause to be withdrawn from the Certificate Account out of the Liquidation
Proceeds recovered on any defaulted mortgage loan, prior to the distribution of
such Liquidation Proceeds to Securityholders, amounts representing its normal
servicing compensation on the mortgage loan, unreimbursed servicing expenses
incurred with respect to the mortgage loan and any unreimbursed advances of
delinquent monthly payments made with respect to the mortgage loan.
If the master servicer or its designee recovers Insurance Proceeds with
respect to any defaulted mortgage loan, the master servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of such
proceeds, prior to distribution of such amount to securityholders, amounts
representing its normal servicing compensation on such mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage loan and
any unreimbursed advances of delinquent monthly payments made with respect to
the mortgage loan. In the event that the master servicer has expended its own
funds to restore damaged property and such funds have not been reimbursed under
any Insurance Instrument, it will be entitled to withdraw from the Certificate
Account out of related Liquidation Proceeds or Insurance Proceeds an amount
equal to such expenses incurred by it, in which event the trust fund may realize
a loss up to the amount so charged. Because Insurance Proceeds cannot exceed
deficiency claims and certain expenses incurred by the master servicer, no such
payment or recovery will result in a recovery to the trust fund which exceeds
the principal balance of the defaulted mortgage loan together with accrued
interest thereon at the Net Interest Rate. In addition, when property securing a
defaulted mortgage loan can be resold for an amount exceeding the outstanding
principal balance of the related mortgage loan together with accrued interest
and expenses, it may be expected that, if retention of any such amount is
legally permissible, the insurer will exercise its right under any
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related mortgage pool insurance policy to purchase such property and realize for
itself any excess proceeds. See "Description of Primary Insurance Policies" and
"Description of Credit Support".
With respect to collateral securing a Cooperative Loan, any prospective
purchaser will generally have to obtain the approval of the board of directors
of the relevant Cooperative before purchasing the shares and acquiring rights
under the proprietary lease or occupancy agreement securing the Cooperative
Loan. See "Certain Legal Aspects of Mortgage Loans-Foreclosure on Cooperatives".
This approval is usually based on the purchaser's income and net worth and
numerous other factors. The necessity of acquiring such approval could limit the
number of potential purchasers for those shares and otherwise limit the master
servicer's ability to sell, and realize the value of, those shares.
RETAINED INTEREST; SERVICING OR ADMINISTRATION COMPENSATION AND PAYMENT OF
EXPENSES
The prospectus supplement for a series of securities will specify
whether there will be any Retained Interest in the trust fund assets, and, if
so, the owner of the Retained Interest. If so, the Retained Interest will be
established on a loan-by-loan basis and will be specified on an exhibit to the
related Agreement. A Retained Interest in a trust fund Asset represents a
specified portion of the interest payable thereon. The Retained Interest will be
deducted from borrower payments as received and will not be part of the related
trust fund. Any partial recovery of interest on a mortgage loan, after deduction
of all applicable servicing fees, will be allocated between Retained Interest
(if any) and interest at the Net Interest Rate on a pari passu basis.
The master servicer's primary compensation with respect to a series of
securities will come from the monthly payment to it, with respect to each
interest payment on a trust fund Asset, of an amount equal to one-twelfth of the
difference between the Interest Rate, minus the rate at which the Retained
Interest, if any, is calculated, and the Net Interest Rate times the scheduled
principal balance of such trust fund Asset. Since any Retained Interest and the
master servicer's primary compensation are percentages of the scheduled
principal balance of each trust fund Asset, such amounts will decrease in
accordance with the amortization schedule of the trust fund assets. As
additional compensation in connection with a series of securities relating to
mortgage loans, the master servicer or the sub-servicers will retain all
assumption fees, prepayment penalties and late payment charges, to the extent
collected from mortgagors. Unless otherwise specified in the related prospectus
supplement, any interest or other income which may be earned on funds held in
the Certificate Account or any Sub-Servicing Account may be paid as additional
compensation to the master servicer or the sub-servicers, as the case may be.
Any sub-servicer will receive a portion of the master servicer's primary
compensation as its sub-servicing compensation.
With respect to a series of securities consisting of mortgage loans, in
addition to amounts payable to any sub-servicer, the master servicer will pay
from its servicing compensation certain expenses incurred in connection with its
servicing of the mortgage loans, including, without limitation, payment of the
fees and disbursements of the trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
securityholders, and payment of any other expenses described in the related
prospectus supplement.
The master servicer is entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted mortgage loans,
including under certain circumstances reimbursement of expenditures incurred by
it in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of securityholders to receive any
related Liquidation Proceeds. The master servicer is also entitled to
reimbursement from the Certificate Account for Advances.
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EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement and each Servicing Agreement with
respect to a series of securities consisting of mortgage loans, will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for Freddie Mac, the servicing by or on
behalf of the master servicer of mortgage loans under servicing agreements
substantially similar to each other (including the related Pooling and Servicing
Agreement or Servicing Agreement) was conducted in compliance with the terms of
such agreements except for any significant exceptions or errors in records that,
in the opinion of the firm, either the Audit Program for Mortgages serviced for
Freddie Mac, or paragraph 4 of the Uniform Single Program for Mortgage Bankers,
requires it to report. In rendering its statement such firm may rely, as to
matters relating to the direct servicing of mortgage loans by sub-servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for Freddie Mac (rendered within one
year of such statement) of firms of independent public accountants with respect
to the related sub-servicer.
Each Pooling and Servicing Agreement and each Servicing Agreement will
also provide for delivery to the trustee, on or before a specified date in each
year, of an annual statement signed by two officers of the master servicer to
the effect that the master servicer has fulfilled its obligations under the
related Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the master servicer may be obtained by securityholders without
charge upon written request to the master servicer at the address set forth in
the related prospectus supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The master servicer under each Pooling and Servicing Agreement and each
Servicing Agreement will be named in the related prospectus supplement. The
entity serving as master servicer may be an affiliate of the Depositor and may
have other normal business relationships with the Depositor or the Depositor's
affiliates.
Each Pooling and Servicing Agreement and each Servicing Agreement will
provide that the master servicer may resign from its obligations and duties
under the related Agreement only if such resignation, and the appointment of a
successor, will not result in a downgrading of any class of securities or upon a
determination that its duties under the related Agreement are no longer
permissible under applicable law. No such resignation will become effective
until the trustee or a successor servicer has assumed the master servicer's
obligations and duties under the related Agreement.
Each Pooling and Servicing Agreement and each Servicing Agreement will
further provide that neither the master servicer, the Depositor nor any
director, officer, employee, or agent of the master servicer or the Depositor
will be under any liability to the related trust fund or securityholders for any
action taken, or for refraining from the taking of any action, in good faith
pursuant to the related Agreement, or for errors in judgment; provided, however,
that neither the master servicer, the Depositor nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason
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of reckless disregard of obligations and duties thereunder. Each Pooling and
Servicing Agreement and each Servicing Agreement will further provide that the
master servicer, the Depositor and any director, officer, employee or agent of
the master servicer or the Depositor will be entitled to indemnification by the
related trust fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the related
Agreement or the securities, other than any loss, liability or expense is
related to any specific mortgage loan or mortgage loans (unless any such loss,
liability or expense otherwise reimbursable pursuant to the related Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. In addition,
each Pooling and Servicing Agreement and each Servicing Agreement will provide
that neither the master servicer nor the Depositor will be under any obligation
to appear in, prosecute or defend any legal action which is not incidental to
its respective responsibilities under the related Agreement and which in its
opinion may involve it in any expense or liability. The master servicer or the
Depositor may, however, in its discretion undertake any such action which it may
deem necessary or desirable with respect to the related Agreement and the rights
and duties of the parties thereto and the interests of the securityholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
securityholders, and the master servicer or the Depositor, as the case may be,
will be entitled to be reimbursed therefor and to charge the Certificate
Account. Except in the case of a series of Senior/Subordinate Securities, any
such obligation of the securityholders will be borne among them on a pro rata
basis in proportion to the Accrued Security Interest payable thereto, and,
notwithstanding any other provision, their respective distributions will be
reduced accordingly.
Any person into which the master servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the master
servicer is a party, or any person succeeding to the business of the master
servicer, will be the successor of the master servicer under each Agreement,
provided that such person is qualified to sell mortgage loans to, and service
mortgage loans on behalf of, Fannie Mae or Freddie Mac.
EVENTS OF DEFAULT AND RIGHTS UPON EVENTS OF DEFAULT
POOLING AND SERVICING AGREEMENT
Unless otherwise provided in the related prospectus supplement for a
series of certificates that includes mortgage loans, Events of Default under
each Pooling and Servicing Agreement will consist of (1) any failure by the
master servicer to distribute or cause to be distributed to Securityholders, or
to remit to the trustee for distribution to Certificateholders, any required
payment that continues unremedied for five days after the giving of written
notice of such failure to the master servicer by the trustee or the Depositor,
or to the master servicer, the Depositor and the trustee by the holders of
certificates evidencing not less than 25% of the Voting Rights; (2) any failure
by the master servicer duly to observe or perform in any material respect any of
its other covenants or obligations under the Agreement which continues
unremedied for thirty days (fifteen days in the case of a failure to pay the
premium for any insurance instrument required to be maintained pursuant to the
Agreement) after the giving of written notice of such failure to the master
servicer by the trustee or the Depositor, or to the master servicer, the
Depositor and the trustee by the holders of certificates evidencing not less
than 25% of the Voting Rights; and (3) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the master servicer
indicating its insolvency or inability to pay its obligations.
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So long as an Event of Default under a Pooling and Servicing Agreement
remains unremedied, the Depositor or the trustee may, and at the direction of
holders of certificates evidencing not less than 51% of the Voting Rights, the
trustee shall, terminate all of the rights and obligations of the master
servicer under the Pooling and Servicing Agreement relating to such trust fund
and in and to the mortgage loans (other than any Retained Interest of the master
servicer), whereupon the trustee will succeed to all of the responsibilities,
duties and liabilities of the master servicer under such Agreement (except that
if the trustee is prohibited by law from obligating itself to make advances
regarding delinquent mortgage loans, then the trustee will not be so obligated)
and will be entitled to similar compensation arrangements. In the event that the
trustee is unwilling or unable so to act, it may or, at the written request of
the holders of certificates entitled to at least 51% of the Voting Rights, it
shall appoint, or petition a court of competent jurisdiction for the appointment
of, a housing loan servicing institution acceptable to the Rating Agency with a
net worth at the time of such appointment of at least $15,000,000 (or such other
amount as may be provided in the related prospectus supplement) to act as
successor to the master servicer under the Agreement. Pending such appointment,
the trustee is obligated to act in such capacity. The trustee and any such
successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation payable to the master servicer under
the related Agreement.
No Certificateholder will have the right under any Pooling and Servicing
Agreement to institute any proceeding with respect thereto unless such holder
previously has given to the trustee written notice of default and unless the
holders of certificates evidencing not less than 25% of the Voting Rights have
made written request upon the trustee to institute such proceeding in its own
name as trustee thereunder and have offered to the trustee reasonable indemnity,
and the trustee for fifteen days has neglected or refused to institute any such
proceeding. The trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any Pooling and Servicing Agreement or to make
any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the holders of certificates covered by such Agreement,
unless such certificateholders have offered to the trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
SERVICING AGREEMENT
Unless otherwise provided in the related prospectus supplement for a
series of notes, a "Servicing Default" under the related Servicing Agreement
generally will include: (1) any failure by the master servicer to make a
required deposit to the Certificate Account or, if the master servicer is so
required, to distribute to the holders of any class of notes or Equity
certificates of such series any required payment which continues unremedied for
five business days (or other period of time described in the related prospectus
supplement) after the giving of written notice of such failure to the master
servicer by the trustee or the Issuer; (2) any failure by the master servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Servicing Agreement with respect to such series of notes which
continues unremedied for 45 days after the giving of written notice of such
failure to the master servicer by the trustee or the Issuer; (3) certain events
of insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the master servicer and certain actions by the
master servicer indicating its insolvency or inability to pay its obligations
and (4) any other Servicing Default as set forth in the Servicing Agreement.
So long as a Servicing Default remains unremedied, either the Depositor
or the trustee may, by written notification to the master servicer and to the
Issuer or the trustee or trust fund, as applicable, terminate all of the rights
and obligations of the master servicer under the Servicing Agreement (other than
any right of the master servicer as noteholder or as holder of the Equity
Certificates and other than
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the right to receive servicing compensation and expenses for servicing the
mortgage loans during any period prior to the date of such termination),
whereupon the trustee will succeed to all responsibilities, duties and
liabilities of the master servicer under such Servicing Agreement (other than
the obligation to purchase mortgage loans under certain circumstances) and will
be entitled to similar compensation arrangements. In the event that the trustee
would be obligated to succeed the master servicer but is unwilling so to act, it
may appoint (or if it is unable so to act, it shall appoint) or petition a court
of competent jurisdiction for the appointment of an approved mortgage servicing
institution with a net worth of at least $15,000,000 to act as successor to the
master servicer under the Servicing Agreement (unless otherwise set forth in the
Servicing Agreement). Pending such appointment, the trustee is obligated to act
in such capacity. The trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial master servicer under the Servicing Agreement.
INDENTURE
Unless otherwise provided in the related prospectus supplement for a
series of notes, an Event of Default under the Indenture generally will include:
(1) a default for five days or more (or other period of time described in the
related prospectus supplement) in the payment of any principal of or interest on
any note of such series; (2) failure to perform any other covenant of the
Depositor or the trust fund in the Indenture which continues for a period of
thirty days after notice of failure is given in accordance with the procedures
described in the related prospectus supplement; (3) any representation or
warranty made by the Depositor or the trust fund in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such series having been incorrect in a
material respect as of the time made, and such breach is not cured within thirty
days after notice of breach is given in accordance with the procedures described
in the related prospectus supplement; (4) certain events of bankruptcy,
insolvency, receivership or liquidation of the Depositor or the trust fund; or
(5) any other Event of Default provided with respect to notes of that series.
If an Event of Default with respect to the notes of any series at the
time outstanding occurs and is continuing, the trustee or the holders of a
majority of the then aggregate outstanding amount of the notes of such series
may declare the principal amount (or, if the notes of that series are Accrual
Securities, such portion of the principal amount as may be specified in the
terms of that series, as provided in the related prospectus supplement) of all
the notes of such series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of a
majority in aggregate outstanding amount of the related notes.
If following an Event of Default with respect to any series of notes,
the notes of such series have been declared to be due and payable, the trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the notes of such series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of such series as they would
have become due if there had not been such a declaration. In addition, the
trustee may not sell or otherwise liquidate the collateral securing the notes of
a series following an Event of Default, unless (1) the holders of 100% of the
then aggregate outstanding amount of the notes of such series consent to such
sale, (2) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the outstanding notes
of such series at the date of such sale or (3) the trustee determines that such
collateral would not be sufficient on an ongoing basis to make all payments on
such notes as such payments would have become due if such notes had not been
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declared due and payable, and the trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the notes of such series.
In the event that the trustee liquidates the collateral in connection
with an Event of Default, the Indenture provides that the trustee will have a
prior lien on the proceeds of any such liquidation for unpaid fees and expenses.
As a result, upon the occurrence of such an Event of Default, the amount
available for payments to the noteholders would be less than would otherwise be
the case. However, the trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the notes of a series is declared due and
payable, as described above, the holders of any such notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No noteholder or holder of an Equity Certificate generally will have any
right under an Owner Trust Agreement or Indenture to institute any proceeding
with respect to such Agreement unless (1) such holder previously has given to
the trustee written notice of default and the continuance of the default, (2)
the holders of notes or Equity Certificates of any class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class (a) have
made written request upon the trustee to institute such proceeding in its own
name as trustee thereunder and (b) have offered to the trustee reasonable
indemnity, (3) the trustee has neglected or refused to institute any such
proceeding for 60 days after receipt of such request and indemnity and (4) no
direction inconsistent with such written request has been given to the trustee
during such 60 day period by the Holders of a majority of the Note Balances of
such class. However, the trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the applicable Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of notes or Equity
Certificates covered by such Agreement, unless such holders have offered to the
trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
With respect to each series of certificates, each related Pooling and
Servicing Agreement or Trust Agreement may be amended by the Depositor, the
master servicer, if any, and the trustee, without the consent of any of the
holders of certificates covered by the Agreement, to cure any ambiguity, to
correct, modify or supplement any provision in the Agreement, or to make any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions of the Agreement,
provided that such action will not adversely affect in any material respect the
interests of any holder of certificates covered by the Agreement. Each Agreement
may also be amended by the Depositor, the master servicer, if any, and the
trustee, with the consent of the holders of certificates evidencing not less
than 66% of the Voting Rights, for any purpose; provided, however, that no such
amendment may (1) reduce in any manner the amount of or delay the timing of,
payments received on trust fund assets which are required to be distributed on
any Certificate without the consent of the holder of such Certificate, (2)
adversely affect in any material respect the interests of the holders of any
class of certificates in a manner other than as described in (i), without the
consent of the holders of certificates of such class evidencing not less than
66% of the aggregate Voting Rights of such class or (3) reduce the aforesaid
percentage of Voting Rights required for the consent to any such amendment
without the consent of the holders of all certificates covered by such Agreement
then outstanding. However, with
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respect to any series of certificates as to which a REMIC election is to be
made, the trustee will not consent to any amendment of the Agreement unless it
shall first have received an opinion of counsel to the effect that such
amendment will not cause the trust fund to fail to qualify as a REMIC at any
time that the related certificates are outstanding. The Voting Rights evidenced
by any Certificate will be the portion of the voting rights of all of the
certificates in the related series allocated in the manner described in the
related prospectus supplement.
With respect to each series of notes, each related Servicing Agreement
or Indenture may be amended by the parties thereto without the consent of any of
the holders of the notes covered by such Agreement, to cure any ambiguity, to
correct, modify or supplement any provision in the Agreement, or to make any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions of the Agreement,
provided that such action will not adversely affect in any material respect the
interests of any holder of notes covered by the Agreement. Each Agreement may
also be amended by the parties thereto with the consent of the holders of notes
evidencing not less than 66% of the Voting Rights, for any purpose; provided,
however, that no such amendment may (1) reduce in any manner the amount of or
delay the timing of, payments received on trust fund assets which are required
to be distributed on any note without the consent of the holder of such note,
(2) adversely affect in any material respect the interests of the holders of any
class of notes in a manner other than as described in (i), without the consent
of the holders of notes of such class evidencing not less than 66% of the
aggregate Voting Rights of such class or (3) reduce the aforesaid percentage of
Voting Rights required for the consent to any such amendment without the consent
of the holders of all notes covered by such Agreement then outstanding. The
Voting Rights evidenced by any note will be the portion of the voting rights of
all of the notes in the related series allocated in the manner described in the
related prospectus supplement.
TERMINATION
The obligations created by the related Agreements for each series of
securities will terminate upon the payment to securityholders of that series of
all amounts held in the Certificate Account or by the master servicer and
required to be paid to them pursuant to such Agreements following the earlier of
(1) the final payment or other liquidation of the last trust fund asset subject
thereto or the disposition of all underlying property subject to the trust fund
assets acquired upon foreclosure of any such trust fund asset and (2) the
purchase of all of the assets of the trust fund by the party entitled to effect
such termination, under the circumstances and in the manner set forth in the
related prospectus supplement. In no event, however, will the trust created by
the related Agreements continue beyond the date specified in the related
prospectus supplement. Written notice of termination of the related Agreements
will be given to each securityholder, and the final distribution will be made
only upon surrender and cancellation of the securities at an office or agency
appointed by the trustee which will be specified in the notice of termination.
Any such purchase of assets of the trust fund shall be made at a price
approximately equal to the greater of (1) the sum of (a) 100% of the Stated
Principal Balance of each mortgage loan as of the day of such purchase plus
accrued interest thereon at the applicable Net Interest Rate to the first day of
the month following such purchase plus (b) the appraised value of any underlying
property subject to the mortgage loans acquired for the benefit of
securityholders, and (2) the aggregate fair market value of all of the assets in
the trust fund (as determined by the trustee, the master servicer, and, if
different than both such persons, the person entitled to effect such
termination), in each case taking into account accrued interest at the
applicable Net Interest Rate to the first day of the month following such
purchase. The exercise of such right will effect early retirement of the
securities of that series, but the right of the
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person entitled to effect such termination is subject to the aggregate principal
balance of the outstanding trust fund assets for such series at the time of
purchase being less than the percentage of the aggregate principal balance of
the trust fund assets at the Cut-off Date for that series specified in the
related prospectus supplement, which percentage will be between 25% and 0% (the
"Clean-up Call").
In addition to the repurchase of the assets in the related trust
fund at the Clean-up Call, if so specified in the related prospectus supplement,
a holder of a non-offered class of securities (the "Call Class") will have the
right, solely at its discretion, to terminate the related trust fund on any
distribution date after the 12th distribution date following the date of initial
issuance of the related series of securities and until such date as the Clean-up
Call becomes exercisable and thereby effect early retirement of the securities
of such series. Any such call will be of the entire trust fund at one time;
multiple calls with respect to any series of securities will not be permitted.
In such case, the holders of the securities offered hereby will be paid a price
equal to 100% of the Principal Balance of the securities offered hereby as of
the day of such purchase plus accrued interest thereon at the applicable
Security Interest Rate during the related period on which interest accrues on
such securities (the "Call Price"). Further, the Call Class must remit to the
related trustee for distribution to the securityholders funds equal to the Call
Price. If such funds are not deposited with the related trustee, the securities
will remain outstanding. There will not be any additional remedies available to
securityholders. In addition, in the case of a trust fund for which a REMIC
election or elections have been made, such termination will constitute a
"qualified liquidation" under Section 860F of the Code. In connection with a
call by the Call Class, the final payment to the securityholders will be made
upon surrender of the related securities to the trustee. Once the securities
have been surrendered and paid in full, there will not be any continuing
liability from the securityholders or from the trust fund to securityholders.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
Unless otherwise provided in the related prospectus supplement, the
master servicer has the option to purchase from the trust fund any mortgage loan
90 days or more delinquent at a purchase price generally equal to the
outstanding principal balance of such mortgage loan as of the date of purchase,
plus all accrued and unpaid interest on such principal balance computed at the
Interest Rate.
DUTIES OF THE TRUSTEE
The trustee makes no representations as to the validity or sufficiency
of any Agreement, the securities or any mortgage loan or related document and is
not accountable for the use or application by or on behalf of the master
servicer of any funds paid to the master servicer or its designee in respect of
the securities or the mortgage loans, or deposited into or withdrawn from the
Certificate Account or any other account by or on behalf of the master servicer.
If no Event of Default has occurred and is continuing, the trustee is required
to perform only those duties specifically required under the related Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the trustee is required to examine such
documents and to determine whether they conform to the requirements of the
related Agreement.
THE TRUSTEE
The trustee or indenture trustee, each referred to as the "trustee",
under each Pooling and Servicing Agreement, Trust Agreement or Indenture will be
named in the related prospectus supplement. The owner trustee for each series of
notes will be named in the related prospectus supplement. The commercial bank,
national banking association or trust company serving as trustee or owner
trustee may
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have normal banking relationships with the Depositor and its affiliates and with
the master servicer and its affiliates.
DESCRIPTION OF CREDIT SUPPORT
If so provided in the related prospectus supplement, the trust fund for
a series of securities may include credit support for such series or for one or
more classes of securities comprising such series, which credit support may
consist of any combination of the following separate components, any of which
may be limited to a specified percentage of the aggregate principal balance of
the mortgage loans covered thereby or a specified dollar amount: (1) coverage
with respect to Realized Losses incurred on Liquidated Loans (the "Defaulted
Mortgage Amount"); (2) coverage with respect to Special Hazard Realized Losses,
as defined below (the "Special Hazard Amount"); and (3) coverage with respect to
certain actions that may be taken by a bankruptcy court in connection with a
mortgage loan, including a Deficient Valuation or a reduction by a bankruptcy
court of the Interest Rate on a mortgage loan or an extension of its maturity
(collectively, the "Bankruptcy Amount"). As set forth below and in the related
prospectus supplement, such coverage may be provided by subordination of one or
more other classes of securities, one or more insurance policies, a bankruptcy
bond, a letter of credit, a reserve fund or any combination of the foregoing.
The amount and type of any credit support with respect to a series of securities
or with respect to one or more classes of securities comprising such series, and
the obligors on such credit support, will be set forth in the related prospectus
supplement. SEE "DESCRIPTION OF THE SECURITIES".
SUBORDINATION
With respect to any Senior/Subordinate Series, in the event of any
Realized Losses on mortgage loans not in excess of the limitations described
below, the rights of the Subordinate Securityholders to receive distributions
with respect to the mortgage loans will be subordinate to the rights of the
Senior Securityholders to the extent described in the related prospectus
supplement.
All Realized Losses will be allocated to the Subordinate Securities of
the related series (or, if such series includes more than one class of
Subordinate Securities, to the outstanding class of Subordinate Securities
having the first priority for allocation of Realized Losses and then to
additional outstanding classes of Subordinate Securities, if any), until the
Principal Balance thereof has been reduced to zero. Any additional Realized
Losses will be allocated to the Senior Securities (or, if such series includes
more than one class of Senior Securities, either on a pro rata basis among all
of the Senior Securities in proportion to their respective outstanding Principal
Balances or as otherwise provided in the related prospectus supplement).
However, with respect to Realized Losses that are attributable to physical
damage to Mortgaged Properties of a type that is not covered by standard hazard
insurance policies ("Special Hazard Realized Losses"), the amount thereof that
may be allocated to the Subordinate Securities of the related series may be
limited to an amount (the "Special Hazard Subordination Amount") specified in
the related prospectus supplement. If so, any Special Hazard Realized Losses in
excess of the Special Hazard Subordination Amount will be allocated among all
outstanding classes of Securities of the related series, on a pro rata basis in
proportion to their respective outstanding Principal Balances, regardless of
whether any Subordinate Securities remain outstanding, or as otherwise provided
in the related prospectus supplement.
Any allocation of a Realized Loss to a security will be made by reducing
the Principal Balance thereof as of the distribution date following the
Prepayment Period in which such Realized Loss was incurred. Unless otherwise
provided in the related prospectus supplement, the "Scheduled Principal
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Balance" of any mortgage loan as of any date of determination is equal to the
unpaid principal balance thereof as of the date of determination, reduced by the
principal portion of all monthly payments due but unpaid as of the date of
determination.
As set forth under "Description of the Securities--Principal of the
Securities", the rights of holders of the various classes of Securities of any
series to receive distributions of principal and interest is determined by the
aggregate Principal Balance of each such class. The Principal Balance of any
security will be reduced by all amounts previously distributed on such security
in respect of principal, and by any Realized Losses allocated thereto. If there
were no Realized Losses or prepayments of principal on any of the mortgage
loans, the respective rights of the holders of securities of any series to
future distributions would not change. However, to the extent so provided in the
related prospectus supplement, holders of Senior Securities may be entitled to
receive a disproportionately larger amount of prepayments received, which will
have the effect of accelerating the amortization of the Senior Securities and
increasing the respective percentage interest in future distributions evidenced
by the Subordinate Securities in the related trust fund (with a corresponding
decrease in the Senior Percentage), as well as preserving the availability of
the subordination provided by the Subordinate Securities. In addition, as set
forth above, Realized Losses will be first allocated to Subordinate Securities
by reduction of the Principal Balance thereof, which will have the effect of
increasing the respective interest in future distributions evidenced by the
Senior Securities in the related trust fund.
If so provided in the related prospectus supplement, certain amounts
otherwise payable on any distribution date to holders of Subordinate Securities
may be deposited into a reserve fund. Amounts held in any reserve fund may be
applied as described below under "Reserve Funds" and in the related prospectus
supplement.
With respect to any Senior/Subordinate Series, the terms and provisions
of the subordination may vary from those described above; any such variation
will be described in the related prospectus supplement.
If so provided in the related prospectus supplement, the credit support
for the Senior Securities of a Senior/Subordinate Series may include, in
addition to the subordination of the Subordinate Securities of such series and
the establishment of a reserve fund, any of the other forms of credit support
described below. If any of such other forms of credit support described below is
maintained solely for the benefit of the Senior Securities of a
Senior/Subordinate Series, then the coverage described below as being provided
by such credit support with respect to a series of securities may be limited to
the extent necessary to make required distributions on such Senior Securities or
as otherwise specified in the related prospectus supplement. If so provided in
the related prospectus supplement, the obligor on any such other forms of credit
support maintained for the benefit of the Senior Securities of a
Senior/Subordinate Series may be reimbursed for amounts paid thereunder out of
amounts otherwise payable on the Subordinate Securities.
LETTER OF CREDIT
As to any series of securities to be covered by a letter of credit (a
"Letter of Credit"), a bank (the "Letter of Credit Bank") will deliver to the
trustee an irrevocable Letter of Credit. The master servicer or trustee will
exercise its best reasonable efforts to keep or cause to be kept the Letter of
Credit in full force and effect, unless coverage thereunder has been exhausted
through payment of claims. The master servicer will agree to pay the fees for
the Letter of Credit on a timely basis unless, as described in the related
prospectus supplement, the payment of such fees is otherwise provided for.
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The master servicer or the trustee will make or cause to be made draws
on the Letter of Credit Bank under each Letter of Credit. Subject to such
differences as will be described in the related prospectus supplement, Letters
of Credit may cover all or any of the following amounts:
(i) to the extent of any Defaulted Mortgage Amount,
for any mortgage loan that became a Liquidated Loan during the related
Prepayment Period (other than mortgage loans as to which amounts paid or
payable under any related Hazard Insurance Instrument, including the
Letter of Credit as described in (ii) below, are not sufficient either
to restore the Mortgaged Property or to pay the outstanding principal
balance of the mortgage loan plus accrued interest), an amount which,
together with all Liquidation Proceeds, Insurance Proceeds, and other
collections on such Liquidated Loan (net of amounts payable or
reimbursable therefrom to the master servicer for related unpaid
servicing fees and unreimbursed servicing expenses), will equal the sum
of (A) the unpaid principal balance of such Liquidated Loan (plus
accrued interest at the applicable Net Interest Rate) plus (B) the
amount of related servicing expenses, if any, not reimbursed to the
master servicer from Liquidation Proceeds, Insurance Proceeds and other
collections on such Liquidation Loan (which shall be paid to the master
servicer);
(ii) to the extent of any Special Hazard Amount, as to
each mortgage loan that is delinquent and as to which the Mortgaged
Property has suffered damage (other than physical damage caused by
hostile or warlike action in time of war or peace, by any weapons of
war, by any insurrection or rebellion, or by any nuclear reaction or
nuclear radiation or nuclear contamination whether controlled or
uncontrolled, or by any action taken by any governmental authority in
response to any of the foregoing) and for which any amounts paid or
payable under the related primary hazard insurance policy or any Special
Hazard Insurance Policy are not sufficient to pay either of the
following amounts, an amount which, together with all Insurance Proceeds
paid or payable under the related primary hazard insurance policy or any
Special Hazard Insurance Policy (net, if such proceeds are not to be
applied to restore such Mortgaged Property, of all amounts payable or
reimbursable therefrom to the master servicer for related unpaid
servicing fees and unreimbursed servicing expenses), will be equal to
the lesser of (A) the amount required to restore such Mortgaged Property
and (B) the sum of (1) the unpaid principal balance of such mortgage
loan (plus accrued interest at the applicable Net Interest Rate) plus
(2) the amount of related servicing expenses, if any, not reimbursed to
the master servicer from Insurance Proceeds paid under the related
primary hazard insurance policy or any Special Hazard Insurance Policy;
and
(iii) to the extent of any Bankruptcy Amount, with
respect to any mortgage loan that has been subject to bankruptcy
proceedings as described above, the amount of any debt service reduction
or Deficient Valuation.
If the related prospectus supplement so provides, at such time as the
Letter of Credit Bank makes a payment as described above with respect to a
Liquidated Loan, or a payment of the full amount owing on a mortgage loan as to
which the Mortgaged Property has been damaged (as described in (ii)(B) above),
the Liquidated Loan will be removed from the related trust fund in accordance
with the terms set forth in the related prospectus supplement and will no longer
be subject to the Agreement. Unless otherwise provided in the related prospectus
supplement, mortgage loans that have been subject to bankruptcy proceedings as
described above, or as to which payment under the Letter of Credit has been made
for the purpose of restoring the related Mortgaged Property (as described in
(ii)(A) above), will remain part of the related trust fund. Any Defaulted
Mortgage Amount, Special Hazard Amount and Bankruptcy Amount covered by any
Letter of Credit will each be reduced to the extent of related unreimbursed
draws thereunder.
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In the event that the Letter of Credit Bank ceases to be a duly
organized commercial bank, or its debt obligations are rated lower than the
highest rating on any class of the securities on the date of issuance by the
Rating Agency or Agencies, the master servicer or trustee will use its best
reasonable efforts to obtain or cause to be obtained, as to each Letter of
Credit, a substitute Letter of Credit issued by a commercial bank that meets
such requirements and providing the same coverage; provided, however, that,
unless otherwise provided in the related prospectus supplement, if the fees
charged or collateral required by such successor Letter of Credit Bank shall be
more than the fees charged or collateral required by such predecessor Letter of
Credit Bank, each component of coverage thereunder may be reduced
proportionately to such a level as results in such fees and collateral being not
more than the fees then charged and collateral then required by such predecessor
Letter of Credit Bank.
MORTGAGE POOL INSURANCE POLICY
As to any series of securities to be covered by a Mortgage Pool
Insurance Policy with respect to any Defaulted Mortgage Amount, the master
servicer will exercise its best reasonable efforts to maintain or cause to be
maintained the Mortgage Pool Insurance Policy in full force and effect, unless
coverage thereunder has been exhausted through payment of claims. The master
servicer will agree to pay the premiums for each Mortgage Pool Insurance Policy
on a timely basis unless, as described in the related prospectus supplement, the
payment of such fees is otherwise provided.
The master servicer will present or cause to be presented claims to the
insurer under each Mortgage Pool Insurance Policy. Mortgage Pool Insurance
Policies, however, are not blanket policies against loss, since claims
thereunder may be made only upon satisfaction of certain conditions, as
described below and, if applicable, in the related prospectus supplement.
Mortgage Pool Insurance Policies do not cover losses arising out of the
matters excluded from coverage under the primary mortgage insurance policy, or
losses due to a failure to pay or denial of a claim under a primary mortgage
insurance policy, irrespective of the reason therefor.
Mortgage Pool Insurance Policies in general provide that no claim may
validly be presented thereunder with respect to a mortgage loan unless (1) an
acceptable primary mortgage insurance policy, if the initial Loan-to-Value Ratio
of the mortgage loan exceeded 80%, has been kept in force until such
Loan-to-Value Ratio is reduced to 80%; (2) premiums on the primary hazard
insurance policy have been paid by the insured and real estate taxes and
foreclosure, protection and preservation expenses have been advanced by or on
behalf of the insured, as approved by the insurer; (3) if there has been
physical loss or damage to the Mortgaged Property, it has been restored to its
physical condition at the time the mortgage loan became insured under the
Mortgage Pool Insurance Policy, subject to reasonable wear and tear; and (4) the
insured has acquired good and merchantable title to the Mortgaged Property, free
and clear of all liens and encumbrances, except permitted encumbrances,
including any right of redemption by or on behalf of the mortgagor, and if
required by the insurer, has sold the property with the approval of the insurer.
Assuming the satisfaction of these conditions, the insurer has the
option to either (a) acquire the property securing the defaulted mortgage loan
for a payment equal to the principal balance thereof plus accrued and unpaid
interest at the Interest Rate to the date of acquisition and certain expenses
described above advanced by or on behalf of the insured, on condition that the
insurer must be provided with good and merchantable title to the Mortgaged
Property (unless the property has been conveyed pursuant to the terms of the
applicable primary mortgage insurance policy) or (b) pay the amount by which the
sum of the principal balance of the defaulted mortgage loan and accrued and
unpaid interest at the Interest Rate
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to the date of the payment of the claim and such expenses exceed the proceeds
received from a sale of the Mortgaged Property which the insurer has approved.
In both (a) and (b), the amount of payment under a Mortgage Pool Insurance
Policy will be reduced by the amount of such loss paid under the primary
mortgage insurance policy.
Unless earlier directed by the insurer, a claim under a Mortgage Pool
Insurance Policy must be filed (a) in the case when a primary mortgage insurance
policy is in force, within a specified number of days (typically, 60 days) after
the claim for loss has been settled or paid thereunder, or after acquisition by
the insured or a sale of the property approved by the insurer, whichever is
later, or (b) in the case when a primary mortgage insurance policy is not in
force, within a specified number of days (typically, 60 days) after acquisition
by the insured or a sale of the property approved by the insurer. A claim must
be paid within a specified period (typically, 30 days) after the claim is made
by the insured.
Unless otherwise specified in the prospectus supplement relating to a
series of securities, the amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the securities of any series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the insurer upon disposition of all acquired properties. The amount
of claims paid includes certain expenses incurred by the master servicer as well
as accrued interest on delinquent mortgage loans to the date of payment of the
claim. See "Certain Legal Aspects of Mortgage Loans--Foreclosure on Mortgages"
and "--Repossession with respect to Contracts". Accordingly, if aggregate net
claims paid under a Mortgage Pool Insurance Policy reach the applicable policy
limit, coverage thereunder will be exhausted and any further losses will be
borne by securityholders of the related series.
In the event that an insurer under a Mortgage Pool Insurance Policy
ceases to be a Qualified Insurer (such term being defined to mean a private
mortgage guaranty insurance company duly qualified as such under applicable laws
and approved as an insurer by Freddie Mac, Fannie Mae, or any successor entity,
and having a claims-paying ability acceptable to the Rating Agency or Agencies),
the master servicer will use its best reasonable efforts to obtain or cause to
be obtained from another Qualified Insurer a replacement insurance policy
comparable to the Mortgage Pool Insurance Policy with a total coverage equal to
the then outstanding coverage of such Mortgage Pool Insurance Policy; provided,
however, that, unless otherwise provided in the related prospectus supplement,
if the cost of the replacement policy is greater than the cost of such Mortgage
Pool Insurance Policy, the coverage of the replacement policy may be reduced to
the level such that its premium rate does not exceed the premium rate on such
Mortgage Pool Insurance Policy. However, in the event that the insurer ceases to
be a Qualified Insurer solely because it ceases to be approved as an insurer by
Freddie Mac, Fannie Mae, or any successor entity, the master servicer will
review, or cause to be reviewed, the financial condition of the insurer with a
view towards determining whether recoveries under the Mortgage Pool Insurance
Policy are jeopardized for reasons related to the financial condition of the
insurer. If the master servicer determines that recoveries are so jeopardized,
it will exercise its best reasonable efforts to obtain from another Qualified
Insurer a replacement policy as described above, subject to the same cost
limitation.
Because each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted mortgage loan be restored to its original
condition prior to claiming against the insurer, such policy will not provide
coverage against hazard losses. As set forth below, the primary hazard insurance
policies covering the mortgage loans typically exclude from coverage physical
damage resulting from a number of causes and, even when the damage is covered,
may afford recoveries that are significantly less than the full replacement cost
of such losses. Further, a special hazard insurance policy (or a Letter of
Credit to the extent of the Special Hazard Amount) will not cover all risks, and
the coverage thereunder will be
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limited in amount. Certain hazard risks will, as a result, be uninsured and will
therefore be borne by Securityholders.
SPECIAL HAZARD INSURANCE POLICY
As to any series of securities to be covered by an Insurance Instrument
that does not cover any Special Hazard Amount, unless otherwise provided in the
related prospectus supplement, the master servicer will exercise its best
reasonable efforts to maintain or cause to be maintained a Special Hazard
Insurance Policy in full force and effect covering the Special Hazard Amount,
unless coverage thereunder has been exhausted through payment of claims;
provided, however, that the master servicer is under no obligation to maintain
such policy in the event that any Insurance Instrument covering such series as
to any Defaulted Mortgage Amount is no longer in effect. The master servicer
will agree to pay the premiums on each Special Hazard Insurance Policy on a
timely basis unless, as described in the related prospectus supplement, payment
of such premiums is otherwise provided for.
Each Special Hazard Insurance Policy will, subject to the limitations
described below, protect holders of securities of the related series from (a)
loss by reason of damage to Mortgaged Properties caused by certain hazards,
including earthquakes and mudflows, not insured against under the primary hazard
insurance policies or a flood insurance policy if the property is in a
designated flood area and (b) loss from partial damage caused by reason of the
application of the co-insurance clause contained in the primary hazard insurance
policies. Special Hazard Insurance Policies will not cover losses occasioned by
normal wear and tear, war, civil insurrection, certain governmental actions,
errors in design, nuclear or chemical reaction or contamination, faulty
workmanship or materials, except under certain circumstances, flood, if the
property is located in a designated flood area, and certain other risks.
Subject to the foregoing limitations, each Special Hazard Insurance
Policy will provide that, when there has been damage to property securing a
defaulted mortgage loan acquired by the insured and to the extent the damage is
not covered by the related primary hazard insurance policy or flood insurance
policy, the insurer will pay the lesser of (1) the cost of repair to the
property and (2) upon transfer of the property to the insurer, the unpaid
principal balance of such mortgage loan at the time of acquisition of the
property by foreclosure, deed in lieu of foreclosure or repossession, plus
accrued interest to the date of claim settlement and certain expenses incurred
by or on behalf of the master servicer with respect to the property. The amount
of coverage under the Special Hazard Insurance Policy will be reduced by the sum
of (a) the unpaid principal balance plus accrued interest and certain expenses
paid by the insurer, less any net proceeds realized by the insurer from the sale
of the property, plus (b) any amount paid as the cost of repair of the property.
Restoration of the property with the proceeds described under clause (1)
of the immediately preceding paragraph will satisfy the condition under a Credit
Insurance Instrument that the property be restored before a claim thereunder may
be validly presented with respect to the defaulted mortgage loan secured by such
property. The payment described under clause (2) of the immediately preceding
paragraph will render unnecessary presentation of a claim in respect of such
mortgage loan under a Credit Insurance Instrument as to any Defaulted Mortgage
Amount. Therefore, so long as the Credit Insurance Instrument remains in effect,
the payment by the insurer of either of the above alternative amounts will not
affect the total insurance proceeds paid to securityholders, but will affect the
relative amounts of coverage remaining under any Special Hazard Insurance Policy
and any Credit Insurance Instrument.
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The sale of a Mortgaged Property must be approved by the insurer under
any Special Hazard Insurance Policy and funds received by the insured in excess
of the unpaid principal balance of the mortgage loan plus interest thereon to
the date of sale plus certain expenses incurred by or on behalf of the master
servicer with respect to the property (not to exceed the amount actually paid by
the insurer) must be refunded to such insurer and, to that extent, coverage
under the Special Hazard Insurance Policy will be restored. If aggregate claim
payments under a Special Hazard Insurance Policy reach the policy limit,
coverage thereunder will be exhausted and any further losses will be borne by
securityholders.
A claim under a Special Hazard Insurance Policy generally must be filed
within a specified number of days (typically, 60 days) after the insured has
acquired good and merchantable title to the property, and a claim payment is
payable within a specified number of days (typically, 30 days) after a claim is
accepted by the insurer. Special Hazard Insurance Policies provide that no claim
may be paid unless primary hazard insurance policy premiums, flood insurance
premiums, if the property is located in a federally designated flood area, and,
as approved by the insurer, real estate property taxes, property protection and
preservation expenses and foreclosure or repossession costs have been paid by or
on behalf of the insured, and unless the insured has maintained the primary
hazard insurance policy and, if the property is located in a federally
designated flood area, flood insurance, as required by the Special Hazard
Insurance Policy.
If a Special Hazard Insurance Policy is canceled or terminated for any
reason, other than the exhaustion of total policy coverage, the master servicer
will use its best reasonable efforts to obtain or cause to be obtained from
another Insurer a replacement policy comparable to such Special Hazard Insurance
Policy with a total coverage that is equal to the then existing coverage of such
Special Hazard Insurance Policy; provided, however, that, unless otherwise
provided in the related prospectus supplement, if the cost of the replacement
policy is greater than the cost of such Special Hazard Insurance Policy, the
coverage of the replacement policy may be reduced to a level such that its
premium rate does not exceed the premium rate on such Special Hazard Insurance
Policy.
Since each Special Hazard Insurance Policy is designed to permit full
recoveries as to any Defaulted Mortgage Amount under a Credit Insurance
Instrument in circumstances in which such recoveries would otherwise be
unavailable because property has been damaged by a cause not insured against by
a primary hazard insurance policy and thus would not be restored, each Agreement
provides that, if the related Credit Insurance Instrument shall have lapsed or
terminated or been exhausted through payment of claims, the master servicer will
be under no further obligation to maintain the Special Hazard Insurance Policy.
BANKRUPTCY BOND
As to any series of securities to be covered by a Bankruptcy Bond with
respect to any Bankruptcy Amount, the master servicer will exercise its best
reasonable efforts to maintain or cause to be maintained the Bankruptcy Bond in
full force and effect, unless coverage thereunder has been exhausted through
payment of claims. The master servicer will pay or cause to be paid the premiums
for each Bankruptcy Bond on a timely basis, unless, as described in the related
prospectus supplement, payment of such premiums is otherwise provided for.
Subject to the limit of the dollar amount of coverage provided, each Bankruptcy
Bond will cover certain losses resulting from an extension of the maturity of a
mortgage loan, or a reduction by the bankruptcy court of the principal balance
of or the Interest Rate on a mortgage loan, and the unpaid interest on the
amount of a principal reduction during the pendency of a proceeding under the
Bankruptcy Code. See "Certain Legal Aspects of Mortgage Loans--Foreclosure on
Mortgages" and "--Repossession with respect to Contracts".
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FINANCIAL GUARANTEE INSURANCE
Financial guarantee insurance ("Financial Guarantee Insurance"), if any,
with respect to a series of securities will be provided by one or more insurance
companies. Such Financial Guarantee Insurance will guarantee, with respect to
one or more classes of securities of the related series, timely distributions of
interest and full distributions of principal on the basis of a schedule of
principal distributions set forth in or determined in the manner specified in
the related prospectus supplement. If so specified in the related prospectus
supplement, the Financial Guarantee Insurance will also guarantee against any
payment made to a securityholder that is subsequently recovered as a "voidable
preference" payment under federal bankruptcy law. A copy of the Financial
Guarantee Insurance policy for a series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the securities of the related series.
RESERVE FUND
If so provided in the related prospectus supplement, the Depositor will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument satisfactory
to the Rating Agency or Agencies, which will be applied and maintained in the
manner and under the conditions specified in such prospectus supplement. In the
alternative or in addition to such deposit, to the extent described in the
prospectus supplement for a Senior/Subordinate Series, a Reserve Fund may be
funded through application of all or a portion of amounts otherwise payable on
the Subordinate securities. Amounts in a Reserve Fund may be distributed to
securityholders, or applied to reimburse the master servicer for outstanding
advances, or may be used for other purposes, in the manner and to the extent
specified in the related prospectus supplement. Unless otherwise provided in the
related prospectus supplement, any such Reserve Fund will not be deemed to be
part of the related trust fund.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, the master servicer or any
other person named in the related prospectus supplement.
CASH FLOW AGREEMENTS
If so provided in the related prospectus supplement, the trust fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The trust fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements designed to reduce the
effects of interest rate or currency exchange rate fluctuations on the trust
fund assets on one or more classes of securities. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement a
"Cash Flow Agreement"), and the identity of the Cash Flow Agreement obligor,
will be described in the prospectus supplement for a series of securities.
DESCRIPTION OF PRIMARY INSURANCE POLICIES
Each mortgage loan will be covered by a primary hazard insurance policy
and, if required as described below, a primary mortgage insurance policy.
PRIMARY MORTGAGE INSURANCE POLICIES
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As set forth under "Description of the securities--Realization Upon
Defaulted Mortgage Loans", the master servicer will maintain or cause to be
maintained with respect to each mortgage loan, a primary mortgage insurance
policy in accordance with the underwriting standards described herein and in the
related prospectus supplement. Although the terms and conditions of primary
mortgage insurance policies differ, each primary mortgage insurance policy will
generally cover losses up to an amount equal to the excess of the unpaid
principal amount of a defaulted mortgage loan, plus accrued and unpaid interest
thereon and certain approved expenses, over a specified percentage of the Value
of the related Mortgaged Property.
As conditions precedent to the filing or payment of a claim under a
primary mortgage insurance policy, the insured will typically be required, in
the event of default by the borrower, among other things, to: (1) advance or
discharge (a) hazard insurance premiums and (b) as necessary and approved in
advance by the insurer, real estate taxes, protection and preservation expenses
and foreclosure and related costs; (2) in the event of any physical loss or
damage to the Mortgaged Property, have the Mortgaged Property restored to at
least its condition at the effective date of the primary mortgage insurance
policy (ordinary wear and tear excepted); and (3) tender to the insurer good and
merchantable title to, and possession of, the Mortgaged Property.
PRIMARY HAZARD INSURANCE POLICIES
Each Agreement will require the master servicer to cause the borrower on
each mortgage loan to maintain a primary hazard insurance policy providing for
coverage of the standard form of fire insurance policy with extended coverage
customary in the state in which the Mortgaged Property is located. Unless
otherwise specified in the related prospectus supplement, such coverage will be
in general in an amount equal to the lesser of the principal balance owing on
such mortgage loan and the amount necessary to fully compensate for any damage
or loss to the improvements on the Mortgaged Property on a replacement cost
basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the master servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any primary hazard insurance policy and under any flood insurance
policy referred to below, or upon the extent to which information in this regard
is furnished by borrowers. All amounts collected by the master servicer under
any such policy, except for amounts to be applied to the restoration or repair
of the Mortgaged Property or released to the borrower in accordance with the
master servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note, will be deposited in the
Certificate Account. The Agreement provides that the master servicer may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by the master servicer's maintaining a blanket policy insuring against hazard
losses on the mortgage loans. If such blanket policy contains a deductible
clause, the master servicer will deposit in the Certificate Account all sums
that would have been deposited in the Certificate Account but for such clause.
The master servicer also is required to maintain a fidelity bond and errors and
omissions policy with respect to its officers and employees that provides
coverage against losses that may be sustained as a result of an officer's or
employee's misappropriation of funds or errors and omissions in failing to
maintain insurance, subject to certain limitations as to amount of coverage,
deductible amounts, conditions, exclusions and exceptions.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the mortgage loans will be
underwritten by different insurers under
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different state laws in accordance with different applicable state forms, and
therefore will not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws, and most such policies typically
do not cover any physical damage resulting from the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement,
including earthquakes, landslides and mudflows, nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. When a Mortgaged Property is
located at origination in a federally designated flood area, each Agreement
requires the master servicer to cause the borrower to acquire and maintain flood
insurance in an amount equal in general to the lesser of (a) the amount
necessary to fully compensate for any damage or loss to the improvements which
are part of the Mortgaged Property on a replacement cost basis and (b) the
maximum amount of insurance available under the federal flood insurance program,
whether or not the area is participating in the program.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance clause that in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the lesser of
(a) the replacement cost of the improvements less physical depreciation and (b)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
The master servicer will not require that a hazard or flood insurance
policy be maintained for any Cooperative Loan. Generally, the Cooperative is
responsible for maintenance of hazard insurance for the property owned by the
Cooperative, and the tenant-stockholders of that Cooperative do not maintain
individual hazard insurance policies. To the extent, however, that a Cooperative
and the related borrower on a Cooperative Note do not maintain such insurance or
do not maintain adequate coverage or any insurance proceeds are not applied to
the restoration of the damaged property, damage to such borrower's Cooperative
apartment or such Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Note.
Since the amount of hazard insurance the master servicer will cause to
be maintained on the improvements securing the mortgage loans declines as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, in the event of partial loss hazard
insurance proceeds may be insufficient to restore fully the damaged property.
Under the terms of the mortgage loans, borrowers are required to present claims
to insurers under hazard insurance policies maintained on the Mortgaged
Properties. The master servicer, on behalf of the trustee and Securityholders,
is obligated to present or cause to be presented claims under any blanket
insurance policy insuring against hazard losses on Mortgaged Properties.
However, the ability of the master servicer to present or cause to be presented
such claims is dependent upon the extent to which information in this regard is
furnished to the master servicer by borrowers.
FHA INSURANCE
The Federal Housing Administration ("FHA") is responsible for
administering various federal programs, including mortgage insurance, authorized
under The Housing Act and the United States Housing Act of 1937, as amended. If
so provided in the related prospectus supplement, certain of the mortgage loans
will be insured by the FHA.
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Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. Unless otherwise provided in the related prospectus
supplement, the master servicer will be obligated to purchase any such debenture
issued in satisfaction of a defaulted FHA insured mortgage loan serviced by it
for an amount equal to the principal amount of any such debenture.
The master servicer will be required to take such steps as are
reasonably necessary to keep FHA insurance in full force and effect.
VA GUARANTEES
The United States Department of Veterans Affairs (the "VA") is an
Executive Branch Department of the United States, headed by the Secretary of
Veterans Affairs. VA currently administers a variety of federal assistance
programs on behalf of eligible veterans and their dependents and beneficiaries.
VA administers a loan guaranty program pursuant to which VA guarantees a portion
of loans made to eligible veterans. If so provided in the prospectus supplement,
certain of the mortgage loans will be guaranteed by the VA.
Under the VA loan guaranty program, a VA Loan may be made to any
eligible veteran by an approved private sector mortgage lender. VA guarantees
payment to the holder of that loan of a fixed percentage of the loan
indebtedness, up to a maximum dollar amount, in the event of default by the
veteran borrower. When a delinquency is reported to VA and no realistic
alternative to foreclosure is developed by the loan holder or through VA's
supplemental servicing of the loan, VA determines, through an economic analysis,
whether VA will (a) authorize the holder to convey the property securing the VA
Loan to the Secretary of Veterans Affairs following termination or (b) pay the
loan guaranty amount to the holder. The decision as to disposition of properties
securing defaulted VA Loans is made on a case-by-case basis using the procedures
set forth in 38 U.S.C. Section 3732(c), as amended.
The master servicer will be required to take such steps as are
reasonably necessary to keep the VA guarantees in full force and effect.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by residential properties. Because such legal aspects
are governed in part by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the mortgage loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the mortgage loans.
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GENERAL
All of the mortgage loans, except as described below, are loans to
homeowners and all of the Single- Family Loans are evidenced by notes or bonds
and secured by instruments which may be mortgages, deeds of trust, security
deeds or deeds to secure debt, depending upon the type of security instrument
customary to grant a security interest in real property in the state in which
the Single-Family Property, as the case may be, is located. If specified in the
prospectus supplement relating to a series of securities, a trust fund may also
contain (1) Cooperative Loans evidenced by promissory notes secured by security
interests in shares issued by private cooperative housing corporations and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in the related buildings or (2) Contracts
evidencing both (a) the obligation of the obligor to repay the loan evidenced
thereby and (b) the grant of a security interest in the related Manufactured
Home to secure repayment of such loan. Any of the foregoing types of encumbrance
will create a lien upon, or grant a title interest in, the subject property, the
priority of which will depend on the terms of the particular security instrument
as well as the order of recordation or filing of the instrument in the
appropriate public office. Such a lien is not prior to the lien for real estate
taxes and assessments.
SINGLE-FAMILY LOANS
The Single-Family Loans will be secured by either mortgages, deeds of
trust, security deeds or deeds to secure debt depending upon the type of
security instrument customary to grant a security interest according to the
prevailing practice in the state in which the property subject to a
Single-Family Loan is located. The filing of a mortgage or a deed of trust
creates a lien upon or conveys title to the real property encumbered by such
instrument and represents the security for the repayment of an obligation that
is customarily evidenced by a promissory note. It is not prior to the lien for
real estate taxes and assessments. Priority with respect to mortgages and deeds
of trust depends on their terms and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage, the mortgagor, who is the borrower/homeowner or the land trustee (as
described below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, title to the property is held by a land
trustee under a land trust agreement, while the borrower/homeowner is the
beneficiary of the land trust; at origination of a mortgage loan, the borrower
executes a separate undertaking to make payments on the mortgage note. Although
a deed of trust is similar to a mortgage, a deed of trust normally has three
parties, the trustor (similar to a mortgagor), who may or may not be the
borrower, the beneficiary (similar to a mortgagee), who is the lender, and the
trustee, a third-party grantee. Under a deed of trust, the trustor grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the trustee to secure payment of the obligation. A security deed and
a deed to secure debt are special types of deeds which indicate on their face
that they are granted to secure an underlying debt. By executing a security deed
or deed to secure debt, the grantor conveys title to, as opposed to merely
creating a lien upon, the subject property to the grantee until such time as the
underlying debt is repaid. The mortgagee's authority under a mortgage and the
trustee's authority under a deed of trust, security deed or deed to secure debt
are governed by the law of the state in which the real property is located, the
express provisions of the mortgage, deed of trust, security deed or deed to
secure debt and, in some cases, the directions of the beneficiary.
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COOPERATIVE LOANS
The Cooperative owns or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The Cooperative is directly responsible for project management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage on the
cooperative apartment building and/or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
Cooperative, as project mortgagor, or lessee, as the case may be, is also
responsible for meeting these blanket mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the Cooperative in connection with either the
construction or purchase of the Cooperative's apartment building or the
obtaining of capital by the Cooperative. The interests of the occupants under
proprietary leases or occupancy agreements as to which the Cooperative is the
landlord are generally subordinate to the interests of the holder of the blanket
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (a) arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (b) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. Also, the blanket mortgage on a Cooperative may
provide financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at final
maturity. The inability of the Cooperative to refinance this mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
foreclosure by the holder of the blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender that financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of the trust fund, the
collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such tenant-stockholder's
pro rata share of the Cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a Cooperative and accompanying occupancy rights is
financed through a Cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the occupancy agreement
or proprietary lease and a security interest in the related Cooperative shares.
The lender generally takes possession of the share certificate and a counterpart
of the proprietary lease or occupancy agreement and a financing statement
covering the proprietary lease or occupancy agreement and the Cooperative shares
is filed in the appropriate state and local offices to perfect the lender's
interest in its collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private sale or
otherwise proceed against the collateral or tenant- stockholder as an individual
as provided in the security agreement covering the assignment of the proprietary
lease or occupancy agreement and the pledge of Cooperative shares. SEE
"FORECLOSURE ON COOPERATIVE SHARES" BELOW.
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CONTRACTS
Under the laws of most states, manufactured housing constitutes personal
property and is subject to the motor vehicle registration laws of the state or
other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states. Such financing statements are
effective for five years and must be renewed at the end of each five years. The
certificate of title laws adopted by the majority of states provide that
ownership of motor vehicles and manufactured housing shall be evidenced by a
certificate of title issued by the motor vehicles department, or a similar
entity, of such state. In the states that have enacted certificate of title
laws, a security interest in a unit of manufactured housing, so long as it is
not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of such interest on the certificate of
title to the unit in the appropriate motor vehicle registration office or by
delivery of the required documents and payment of a fee to such office,
depending on state law.
The master servicer will be required under the related Agreement to
effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any Manufactured Home is registered. In the event the master
servicer fails, due to clerical errors or otherwise, to effect such notation or
delivery, or files the security interest under the wrong law, for example, under
a motor vehicle title statute rather than under the UCC, in a few states, the
trustee may not have a first priority security interest in the Manufactured Home
securing a Contract. As manufactured homes have become larger and often have
been attached to their sites without any apparent intention by the borrowers to
move them, courts in many states have held that manufactured homes may, under
certain circumstances, become subject to real estate title and recording laws.
As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under real estate laws, the holder of the security
interest must file either a "fixture filing" under the provisions of the UCC or
a real estate mortgage under the real estate laws of the state where the home is
located. These filings must be made in the real estate records office of the
county where the home is located. Generally, Contracts will contain provisions
prohibiting the obligor from permanently attaching the Manufactured Home to its
site. So long as the obligor does not violate this agreement, a security
interest in the Manufactured Home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to maintain
the priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home that is prior to the security
interest originally retained by the seller and transferred to the Depositor.
The Depositor will assign or cause to be assigned a security interest in
the Manufactured Homes to the trustee, on behalf of the securityholders. Unless
otherwise specified in the related prospectus supplement, neither the Depositor,
the master servicer nor the trustee will amend the certificates of title to
identify the trustee, on behalf of the securityholders, as the new secured party
and, accordingly, the Depositor or the mortgage loan seller will continue to be
named as the secured party on the certificates of title relating to the
Manufactured Homes. In most states, such assignment is an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Depositor's
rights as the secured party. However, in some states there exists a risk that,
in the absence of an amendment to the certificate of title, such assignment of
the security interest might not be held effective against creditors of the
Depositor or mortgage loan seller.
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In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the Depositor
has failed to perfect or cause to be perfected the security interest assigned to
the trust fund, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the trustee, on
behalf of the securityholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the trustee
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and re-register
the Manufactured Home in such state, and if the Depositor did not take steps to
re-perfect its security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Depositor must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the Depositor would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Depositor would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related Agreement, the master servicer will be obligated to
take such steps, at the master servicer's expense, as are necessary to maintain
perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will obtain the representation of the mortgage loan seller that it has
no knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the trustee or securityholders in the event
such a lien arises.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust,
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, the trustee in some states must provide notice
to any other individual having an interest in the real property, including any
junior lienholder. The trustor, borrower, or any person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses
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and costs, including attorneys' fees, that may be recovered by a lender. If the
deed of trust is not reinstated, a notice of sale must be posted in a public
place and, in most states, published for a specific period of time in one or
more newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property, recorded and sent to all parties having an
interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage and in the mortgaged
property. It is regulated by statutes and rules and subject throughout to the
court's equitable powers. Generally, a mortgagor is bound by the terms of the
mortgage note and the mortgage as made and cannot be relieved from its own
default. However, since a foreclosure action is equitable in nature and is
addressed to a court of equity, the court may relieve a mortgagor of a default
and deny the mortgagee foreclosure on proof that the mortgagor's default was
neither willful nor in bad faith and that the mortgagee's action was such as to
establish a waiver, or fraud, bad faith, oppressive or unconscionable conduct as
to warrant a court of equity to refuse affirmative relief to the mortgagee.
Under certain circumstances a court of equity may relieve the mortgagor from an
entirely technical default where such default was not willful.
A foreclosure action or sale pursuant to a power of sale is subject to
most of the delays and expenses of other lawsuits if defenses or counterclaims
are interposed, sometimes requiring up to several years to complete. Moreover,
recent judicial decisions suggest that a non-collusive, regularly conducted
foreclosure sale or sale pursuant to a power of sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy. Similarly, a suit
against the debtor on the mortgage note may take several years.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third party purchasers at the
sale have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for an amount equal to the principal amount of the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure. Thereafter, the lender will assume the burdens of ownership,
including obtaining casualty insurance, paying taxes and making such repairs at
its own expense as are necessary to render the property suitable for sale.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, with respect to those
mortgage loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and
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expenses of sale and then in satisfaction of the indebtedness secured by the
mortgage or deed of trust under which the sale was conducted. Any remaining
proceeds are generally payable to the holders of junior mortgages or deeds of
trust and other liens and claims in order of their priority, whether or not the
borrower is in default. Any additional proceeds are generally payable to the
mortgagor or trustor. The payment of the proceeds to the holders of junior
mortgages may occur in the foreclosure action of the senior mortgagee or may
require the institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
FORECLOSURE ON MORTGAGED PROPERTIES LOCATED IN THE COMMONWEALTH OF PUERTO RICO
Under the laws of the Commonwealth of Puerto Rico the foreclosure of a
real estate mortgage usually follows an ordinary "civil action" filed in the
Superior Court for the district where the mortgage property is located. If the
defendant does not contest the action filed, a default judgment is rendered for
the plaintiff and the mortgaged property is sold at public auction, after
publication of the sale for two weeks, by posting written notice in three public
places in the municipality where the auction will be held, in the tax collection
office and in the public school of the municipality where the mortgagor resides,
if known. If the residence of the mortgagor is not known, publication in one of
the newspapers of general circulation in the Commonwealth of Puerto Rico must be
made at least once a week for two weeks. There may be as many as three public
sales of the mortgaged property. If the defendant contests the foreclosure, the
case may be tried and judgment rendered based on the merits of the case.
There are no redemption rights after the public sale of a foreclosed
property under the laws of the Commonwealth of Puerto Rico. Commonwealth of
Puerto Rico law provides for a summary proceeding for the foreclosure of a
mortgage, but it is very seldom used because of concerns regarding the validity
of such actions. The process may be expedited if the mortgagee can obtain the
consent of the defendant to the execution of a deed in lieu of foreclosure.
Under Commonwealth of Puerto Rico law, in the case of the public sale
upon foreclosure of a mortgaged property that (a) is subject to a mortgage loan
that was obtained for a purpose other than the financing or refinancing of the
acquisition, construction or improvement of such property and (b) is occupied by
the mortgagor as his principal residence, the mortgagor of such property has a
right to be paid the first $1,500 from the proceeds obtained on the public sale
of such property. The mortgagor can claim this sum of money from the mortgagee
at any time prior to the public sale or up to one year after
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such sale. Such payment would reduce the amount of sales proceeds available to
satisfy the mortgage loan and may increase the amount of the loss.
FORECLOSURE ON COOPERATIVE SHARES
The Cooperative shares and proprietary lease or occupancy agreement
owned by the tenant- stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the Cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement, and may be canceled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the Cooperative apartment
building incurred by such tenant-stockholder. Typically, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
that are owed to the Cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the Cooperative to terminate such
lease or agreement in the event the tenant-stockholder fails to make payments or
defaults in the performance of covenants required thereunder. Typically, the
lender and the Cooperative enter into a recognition agreement that, together
with any lender protection provisions contained in the proprietary lease,
establishes the rights and obligations of both parties in the event of a default
by the tenant- stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the Cooperative
apartment, subject, however, to the Cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the shares
relating to the proprietary lease or occupancy agreement. The total amount owed
to the Cooperative by the tenant- stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and unpaid
interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
Under the laws applicable in most states, foreclosure on the Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to those shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner.
Whether a foreclosure sale has been conducted in a "commercially reasonable"
manner will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the method,
manner, time, place and terms of the foreclosure. Generally, a sale conducted
according to the usual practice of banks selling similar collateral will be
considered reasonably conducted.
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Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. SEE "ANTI-DEFICIENCY LEGISLATION AND
OTHER LIMITATIONS ON LENDERS" BELOW.
REPOSSESSION WITH RESPECT TO CONTRACTS
Repossession of manufactured housing is governed by state law. A few
states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process (repossession
pursuant to court-issued writ of replevin). The self-help and/or
voluntary repossession methods are more commonly employed, and are
accomplished simply by retaking possession of the manufactured home. In
cases in which the debtor objects or raises a defense to repossession, a
court order must be obtained from the appropriate state court, and the
manufactured home must then be repossessed in accordance with that
order. Whether the method employed is self-help, voluntary repossession
or judicial repossession, the repossession can be accomplished either by
an actual physical removal of the manufactured home to a secure location
for refurbishment and resale or by removing the occupants and their
belongings from the manufactured home and maintaining possession of the
manufactured home on the location where the occupants were residing.
Various factors may affect whether the manufactured home is physically
removed or left on location, such as the nature and term of the lease of
the site on which it is located and the condition of the unit. In many
cases, leaving the manufactured home on location is preferable, in the
event that the home is already set up, because the expenses of retaking
and redelivery will be saved. However, in those cases where the home is
left on location, expenses for site rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for the
subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the indebtedness, the remainder may be sought from the
debtor in the form of a deficiency judgment in those states that do not
prohibit or limit such judgments. The deficiency judgment is a personal
judgment against the debtor for the
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shortfall. Occasionally, after resale of a manufactured home and payment
of all expenses and indebtedness, there is a surplus of funds. In that
case, the UCC requires the party suing for the deficiency judgment to
remit the surplus to the debtor. Because the defaulting owner of a
manufactured home generally has very little capital or income available
following repossession, a deficiency judgment may not be sought in many
cases or, if obtained, will be settled at a significant discount in
light of the defaulting owner's strained financial condition.
LOUISIANA LAW
Any contract secured by a manufactured home located in Louisiana will be
governed by Louisiana law rather than Article 9 of the UCC. Louisiana laws
provide similar mechanisms for perfection and enforcement of security interests
in manufactured housing used as collateral for an installment sale contract or
installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale, without court
supervision, is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION WITH RESPECT TO SINGLE-FAMILY PROPERTIES
In some states, after sale pursuant to a deed of trust or foreclosure of
a mortgage, the trustor or mortgagor and certain foreclosed junior lienors are
given a statutory period in which to redeem the property from the foreclosure
sale. The right of redemption should be distinguished from the equity of
redemption, which is a nonstatutory right that must be exercised prior to the
foreclosure sale. In some states, redemption may occur only upon payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The right of redemption would defeat the title of any purchaser
acquired at a public sale. Consequently, the practical effect of a right of
redemption is to force the lender to retain the property and pay the expenses of
ownership and maintenance of the property until the redemption period has
expired. In some states, there is no right to redeem property after a trustee's
sale under a deed of trust.
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NOTICE OF SALE; REDEMPTION RIGHTS WITH RESPECT TO MANUFACTURED HOMES
While state laws do not usually require notice to be given to debtors
prior to repossession, many states do require delivery of a notice of default
and of the debtor's right to cure defaults before repossession. The law in most
states also requires that the debtor be given notice of sale prior to the resale
of the home so that the owner may redeem at or before resale. In addition, the
sale must comply with the requirements of the UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, the
filing of a petition acts as a stay against the enforcement of remedies of
collection of a debt. Moreover, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 13 rehabilitative plan to cure a
monetary default with respect to a mortgage loan on a debtor's residence by
paying arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of a foreclosure had been entered in state court
(provided no sale of the property had yet occurred) prior to the filing of the
debtor's Chapter 13 petition. Some courts with federal bankruptcy jurisdiction
have approved plans, based on the particular facts of the reorganization case,
that effected the curing of a mortgage loan default by paying arrearages over a
number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified if
the borrower has filed a petition under Chapter 13. These courts have suggested
that such modifications may include reducing the amount of each monthly payment,
changing the rate of interest, altering the repayment schedule and reducing the
lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could not be applied
to the terms of a loan secured by property that is the principal residence of
the debtor. In all cases, the secured creditor is entitled to the value of its
security plus post-petition interest, attorneys' fees and costs to the extent
the value of the security exceeds the debt.
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The Bankruptcy Reform Act of 1994 established the National Bankruptcy
Review Commission ("NBRC") for purposes of analyzing the nation's bankruptcy
laws and making recommendations to Congress for legislative changes to the
bankruptcy laws. A similar commission was involved in developing the Bankruptcy
Code. The NBRC delivered its report to Congress, the President of the United
States and the Chief Justice of the Supreme Court on October 20, 1997. Among
other topics, high leverage loans were addressed in the NBRC's report. Despite
certain ambiguities, the NBRC's report appears to recommend that Congress amend
Bankruptcy Code section 1322(b)(2) by treating a claim secured only by a junior
security interest in a debtor's principal residence as protected only to the
extent that the claim was secured when the security interest was made if the
value of the property securing the junior security interest is less than such
amount. However, the express language of the report implies that a claim secured
only by a junior security interest in a debtor's principal residence may not be
modified to reduce such claim below the appraised value of the property at the
time the security interest was made. A strong dissent by certain members of the
NBRC recommends that the protections of Bankruptcy Code section 1322(b)(2) be
extended to creditors principally secured by the debtor's principal residence.
Additionally, the NBRC's report recommends that a creditor's secured claim in
real property should be determined by the property's fair market value, less
hypothetical costs of sale. The standard advocated by this recommendation would
not apply to mortgages on the primary residence of a Chapter 11 or 13 debtor who
retains the residence if such mortgages are protected from modification such as
those senior mortgages not subject to modification pursuant to Bankruptcy Code
Sections 1322(b)(2) and 1123(b)(5). The final NBRC report may ultimately lead to
substantive changes to the existing Bankruptcy Code, such as reducing
outstanding loan balances to the appraised value of a debtor's principal
residence at the time the security interest in the property was taken, which
could affect the mortgage loans included in a trust fund and the enforcement of
rights therein.
Certain tax liens arising under the Code, may in certain circumstances
provide priority over the lien of a mortgage or deed of trust. In addition,
substantive requirements are imposed upon mortgage lenders in connection with
the origination and the servicing of single family mortgage loans by numerous
federal and some state consumer protection laws. These laws include the Federal
Truth-in-Lending Act, Regulation "Z", Real Estate Settlement Procedures Act,
Regulation "X", Equal Credit Opportunity Act, Regulation "B", Fair Credit
Billing Act, Fair Credit Housing Act, Fair Credit Reporting Act and related
statutes. These federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the mortgage loans.
In particular, the originators' failure to comply with certain requirements of
the Federal Truth-in-Lending Act, as implemented by Regulation Z, could subject
both originators and assignees of such obligations to monetary penalties and
could result in obligors' rescinding loans against either originators or
assignees.
In addition, certain of the mortgage loans included in a trust fund may
also be subject to the Home Ownership and Equity Protection Act of 1994 (the
"Homeownership Act") (such mortgage loans, "High Cost Loans"), if such mortgage
loans were originated on or after October 1, 1995, are not mortgage loans made
to finance the purchase of the mortgaged property and have interest rates or
origination costs in excess of certain prescribed levels. The Homeownership Act
requires certain additional disclosures, specifies the timing of such
disclosures and limits or prohibits inclusion of certain provisions in mortgages
subject to the Homeownership Act. Remedies available to the mortgagor include
monetary penalties, as well as recission rights if the appropriate disclosures
were not given as required or if the particular mortgage includes provisions
prohibited by law. The Homeownership Act also provides that any purchaser or
assignee of a mortgage covered by the Homeownership Act is subject to all of the
claims and defenses to loan payment, whether under the Federal Truth-in-Lending
Act, as amended by the Homeownership Act or other law, which the borrower could
assert against the original lender unless
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the purchaser or assignee did not know and could not with reasonable diligence
have determined that the mortgage loan was subject to the provisions of the
Homeownership Act. The maximum damages that may be recovered under the
Homeownership Act from an assignee is the remaining amount of indebtedness plus
the total amount paid by the borrower in connection with the mortgage loan.
FOR COOPERATIVE LOANS
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted Section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
JUNIOR MORTGAGES
Some of the mortgage loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the trust fund. The rights of the Securityholders as the holders of a
junior deed of trust or a junior mortgage are subordinate in lien priority and
in payment priority to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the defaulted
senior loan or asserts its subordinate interest in a property in foreclosure
proceedings. SEE "--FORECLOSURE ON MORTGAGES" HEREIN.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
HOME EQUITY LINE OF CREDIT LOANS
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Home Equity Line of Credit Loans typically
contains a 'future advance' clause, which provides, in essence, that additional
amounts advanced to or on behalf of the borrower by the beneficiary or lender
are to be secured by the deed of trust or mortgage. Any amounts so advances
after the Cut-off Date with respect to any Mortgage will not be included in the
trust fund. The priority of the lien securing any advance made under the clause
may depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual
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knowledge of such intervening junior trust deeds or mortgages and other liens at
the time of the advance. In most states, the trust deed or mortgage liens
securing mortgage loans of the type which includes home equity credit lines
applies retroactively to the date of the original recording of the trust deed or
mortgage, provided that the total amount of advances under the home equity
credit line does not exceed the maximum specified principal amount of the
recorded trust deed or mortgage, except as to advances made after receipt by the
lender of a written notice of lien from a judgment lien creditor of the trustor.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act, Regulation "X", the Fair Housing Act and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to comply
with their provisions. In some cases, this liability may affect an assignee's
ability to enforce a contract. In particular, the originators' failure to comply
with certain requirements of the Federal Truth-in-Lending Act, as implemented by
Regulation Z, could subject both originators and assignees of such obligations
to monetary penalties and could result in obligors' rescinding the Contracts
against either the originators or assignees. Further if such Contracts are
deemed High Cost Loans within the meaning of the Homeownership Act, they would
be subject to the same provisions of the Homeownership Act as mortgage loans as
described in "--Anti-Deficiency Legislation and Other Limitations on Lenders"
above.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Unless otherwise provided in the related prospectus supplement,
under the Agreement, late charges will be retained by the master servicer as
additional servicing compensation, and any inability to collect these amounts
will not affect payments to securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder.
Most of the Contracts in a trust fund will be subject to the
requirements of the FTC Rule. Accordingly, the trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is
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successful in asserting any such claim or defense, and if the mortgage loan
seller had or should have had knowledge of such claim or defense, the master
servicer will have the right to require the mortgage loan seller to repurchase
the Contract because of a breach of its mortgage loan seller's representation
and warranty that no claims or defenses exist that would affect the obligor's
obligation to make the required payments under the Contract. The mortgage loan
seller would then have the right to require the originating dealer to repurchase
the Contract from it and might also have the right to recover from the dealer
for any losses suffered by the mortgage loan seller with respect to which the
dealer would have been primarily liable to the obligor.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral and/or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a home, and, as part of the rehabilitation plan, reduce
the amount of the secured indebtedness to the market value of the home at the
time of bankruptcy (as determined by the court), leaving the party providing
financing as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the prospectus supplement indicates otherwise, all the related
mortgage loans will contain due-on-sale clauses. These clauses permit the lender
to accelerate the maturity of the loan if the borrower sells, transfers, or
conveys the property without the prior consent of the lender. The enforceability
of these clauses has been impaired in various ways in certain states by statute
or decisional law. The ability of lenders and their assignees and transferees to
enforce due-on-sale clauses was addressed by the Garn- St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act"), which was enacted on
October 15, 1982. This legislation, subject to certain exceptions, preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses. The Garn-St Germain Act does "encourage" lenders to permit
assumptions of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rate.
SINGLE-FAMILY LOANS
Exempted from this preemption pursuant to the Garn-St Germain Act are
mortgage loans, originated other than by federal savings and loan associations
and federal savings banks, that were made or assumed during the period beginning
on the date a state, by statute or final appellate court decision having
statewide effect, prohibited the exercise of due-on-sale clauses and ending on
October 15, 1982 ("Window Period Loans"). However, this exception applies only
to transfers of property underlying Window Period Loans occurring between
October 15, 1982 and October 15, 1985 and does not restrict enforcement of a
due-on-sale clause in connection with current transfers of property underlying
Window Period Loans unless the property underlying such Window Period Loan is
located in one of the five "window period states" identified below. Due-on-sale
clauses contained in mortgage loans originated by federal savings and loan
associations or federal savings banks are fully enforceable pursuant to
regulations of the Federal Home Loan Bank Board, predecessor to the Office of
Thrift Supervision, which preempt state law restrictions on the enforcement of
due-on-sale clauses. Mortgage loans originated by such institutions are
therefore not deemed to be Window Period Loans.
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With the expiration of the exemption for Window Period Loans on October
15, 1985, due-on-sale clauses have become generally enforceable except in those
states whose legislatures exercised their authority to regulate the
enforceability of such clauses with respect to mortgage loans that were (1)
originated or assumed during the "window period", which ended in all cases not
later than October 15, 1982, and (2) originated by lenders other than national
banks, federal savings institutions and federal credit unions. Freddie Mac has
taken the position in its published mortgage servicing standards that, out of a
total of eleven "window period states", five states (Arizona, Michigan,
Minnesota, New Mexico and Utah) have enacted statutes extending, on various
terms and for varying periods, the prohibition on enforcement of due-on-sale
clauses with respect to certain categories of Window Period Loans. The Garn-St
Germain Act also sets forth nine specific instances in which a mortgage lender
covered by the Garn-St Germain Act (including federal savings and loan
associations and federal savings banks) may not exercise a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the mortgage loans related to a series and the number of such
mortgage loans which may be outstanding until maturity.
TRANSFER OF MANUFACTURED HOMES
Generally, manufactured housing contracts contain provisions prohibiting
the sale or transfer of the related manufactured homes without the consent of
the obligee on the contract and permitting the acceleration of the maturity of
such contracts by the obligee on the contract upon any such sale or transfer
that is not consented to. Unless otherwise provided in the related prospectus
supplement, the master servicer will, to the extent it has knowledge of such
conveyance or proposed conveyance, exercise or cause to be exercised its rights
to accelerate the maturity of the related Contracts through enforcement of
due-on-sale clauses, subject to applicable state law. In certain cases, the
transfer may be made by a delinquent obligor in order to avoid a repossession
proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the master
servicer desires to accelerate the maturity of the related Contract, the master
servicer's ability to do so will depend on the enforceability under state law of
the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the Manufactured Homes. Consequently, in some cases the
master servicer may be prohibited from enforcing a due-on-sale clause in respect
of certain Manufactured Homes.
PREPAYMENT CHARGES AND PREPAYMENTS
Generally, mortgage loans may be prepaid in full or in part without
penalty. The regulations of the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage to a refinancing lender.
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SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceeds by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision that expressly
rejects application of the federal law. In addition, even where Title V is not
so rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that mortgage loans originated on or after January 1, 1980
are subject to federal preemption. Therefore, in a state that has not taken the
requisite action to reject application of Title V or to adopt a provision
limiting discount points or other charges prior to origination of such mortgage
loans, any such limitation under such state's usury law would not apply to such
mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no mortgage
loans originated after the date of such state action will be eligible for
inclusion in a trust fund if such mortgage loans bear interest or provide for
discount points or charges in excess of permitted levels. No mortgage loan
originated prior to January 1, 1980 will bear interest or provide for discount
points or charges in excess of permitted levels.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any
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state is authorized by the law to adopt a provision limiting discount points or
other charges on loans covered by Title V. In any state in which application of
Title V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the trust fund.
ALTERNATIVE MORTGAGE INSTRUMENTS
ARM Loans originated by non-federally chartered lenders have
historically been subject to a variety of restrictions. Such restrictions
differed from state to state, resulting in difficulties in determining whether a
particular alternative mortgage instrument originated by a state-chartered
lender complied with applicable law. These difficulties were simplified
substantially as a result of the enactment of Title VIII of the Garn-St Germain
Act ("Title VIII"). Title VIII provides that, notwithstanding any state law to
the contrary, (1) state-chartered banks may originate "alternative mortgage
instruments" (including ARM Loans) in accordance with regulations promulgated by
the Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, (2) state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with respect to
origination of alternative mortgage instruments by federal credit unions and (3)
all other non-federally chartered housing creditors, including, without
limitation, state-chartered savings and loan associations, savings banks and
mutual savings banks and mortgage banking companies may originate alternative
mortgage instruments in accordance with the regulations promulgated by the
Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision
with respect to origination of alternative mortgage instruments by federal
savings and loan associations. Title VIII further provides that any state may
reject applicability of the provisions of Title VIII by adopting, prior to
October 15, 1985, a law or constitutional provision expressly rejecting the
applicability of such provisions. Certain states have taken such action.
The Depositor has been advised by its counsel that it is their opinion
that a court interpreting Title VIII would hold that ARM Loans that were
originated by state-chartered lenders before the date of enactment of any state
law or constitutional provision rejecting applicability of Title VIII would not
be subject to state laws imposing restrictions or prohibitions on the ability of
state-chartered lenders to originate alternative mortgage instruments.
All of the ARM Loans that were originated by a state-chartered lender
after the enactment of a state law or constitutional provision rejecting the
applicability of Title VIII complied with applicable state law. All of the ARM
Loans that were originated by federally chartered lenders or that were
originated by state-chartered lenders prior to enactment of a state law or
constitutional provision rejecting the applicability of Title VIII were
originated in compliance with all applicable federal regulations.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Depositor is aware of a limited number
of cases in which plaintiffs have won judgments in these lawsuits.
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Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. The successful assertion
of such claim constitutes a breach of a representation or warranty of the
mortgage loan seller, and the securityholders would suffer a loss only to the
extent that (1) the mortgage loan seller breached its obligation to repurchase
the Contract in the event an obligor is successful in asserting such a claim,
and (2) the mortgage loan seller, the Depositor or the trustee were unsuccessful
in asserting any claim of contribution or subrogation on behalf of the
securityholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde in manufactured housing, with
the result that recoveries from such manufacturers, suppliers or other persons
may be limited to their corporate assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan, including a borrower who was in
reserve status and is called to active duty after origination of the mortgage
loan, may not be charged interest, including fees and charges, above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
borrowers who are members of the Army, Navy, Air Force, Marines, National Guard,
Reserves, Coast Guard, and officers of the U.S. Public Health Service assigned
to duty with the military. Because the Relief Act applies to borrowers who enter
military service, including reservists who are called to active duty, after
origination of the related mortgage loan, no information can be provided as to
the number of loans that may be affected by the Relief Act. Application of the
Relief Act would adversely affect, for an indeterminate period of time, the
ability of the master servicer to collect full amounts of interest on certain of
the mortgage loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of securities, and would not
be covered by advances or, unless otherwise specified in the related prospectus
supplement, any form of credit support provided in connection with such
securities. In addition, the Relief Act imposes limitations that would impair
the ability of the master servicer to foreclose on an affected Single-Family
Loan, Cooperation Loan or enforce rights under a Contract during the borrower's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the event that such a
mortgage loan goes into default, there may be delays and losses occasioned
thereby.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of
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owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility. What constitutes sufficient participation in the management of a
property securing a loan or the business of a borrower to render the exemption
unavailable to a lender has been a matter of interpretation by the courts.
CERCLA has been interpreted to impose liability on a secured party, even absent
foreclosure, where the party participated in the financial management of the
borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and
thereupon become owners of collateral property, courts are inconsistent as to
whether such ownership renders the secured creditor exemption unavailable. Other
federal and state laws in certain circumstances may impose liability on a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property on which
contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural chemicals, hazardous wastes, asbestos, radon, and
lead-based paint. Such cleanup costs may be substantial. It is possible that
such cleanup costs could become a liability of a trust fund and reduce the
amounts otherwise distributable to the holders of the related series of
securities. Moreover, certain federal statutes and certain states by statute
impose a lien for any cleanup costs incurred by such state on the property that
is the subject of such cleanup costs (an "environmental lien"). All subsequent
liens on such property generally are subordinated to such an environmental lien
and, in some states, even prior recorded liens are subordinated to environmental
liens. In the latter states, the security interest of the Trust in a related
parcel of real property that is subject to such an environmental lien could be
adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, the master servicer has
not made and will not make such evaluations prior to the origination of the
mortgage loans. Neither the master servicer nor any replacement Servicer will be
required by any Agreement to undertake any such evaluations prior to foreclosure
or accepting a deed-in-lieu of foreclosure. The master servicer does not make
any representations or warranties or assume any liability with respect to the
absence or effect of contaminants on any related real property or any casualty
resulting from the presence or effect of contaminants. However, the master
servicer will not be obligated to foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on such property. A failure so to foreclose may
reduce the amounts otherwise available to Securityholders of the related Series.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchase with the proceeds of, illegal drug or RICO
activities.
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NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First
Circuit, held that state restrictions on the compounding of interest are not
preempted by the provisions of the Depository Institutions Deregulation and
Monetary Control Act of 1980 ("DIDMC") and as a result, a mortgage loan that
provided for negative amortization violated New Hampshire's requirement that
first mortgage loans provide for computation of interest on a simple interest
basis. The holding was limited to the effect of DIDMC on state laws regarding
the compounding of interest and the court did not address the applicability of
the Alternative Mortgage Transaction Parity Act of 1982, which authorizes lender
to make residential mortgage loans that provide for negative amortization. The
First Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the certificates
offered hereunder and does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors, some
of which (such as banks, insurance companies and foreign investors) may be
subject to special rules. In addition, the following discussion represents an
interpretation of the law at the time of this Prospectus, and does not represent
an opinion of Thacher Proffitt & Wood, counsel to the Depositor, except with
respect to the first paragraph under "--REMICs--Classification of REMICs", the
first paragraph under "--REMICs--Tiered REMIC Structures", the first paragraph
under "--notes", the first paragraph under --Grantor trust funds--Classification
of Grantor trust funds", the first paragraph under "--Partnership trust
funds--Classification of Partnership trust funds" and the first paragraph under
"--Partnership trust funds--Taxation of Debt Certificateholders--Treatment of
the Debt certificates as Indebtedness" herein.
Further, the authorities on which this discussion, and the opinions
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers of tax returns
(including those filed by any REMIC or other issuer) should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice (1) is given
with respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and (2)
is directly relevant to the determination of an entry on a tax return.
Accordingly, it is recommended that taxpayers consult their own tax advisors and
tax return preparers regarding the preparation of any item on a tax return, even
where the anticipated tax treatment has been discussed herein. In addition to
the federal income tax consequences described herein, potential investors should
consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the certificates. SEE "STATE AND OTHER TAX
CONSEQUENCES." It is recommended that Certificateholders consult their own tax
advisors concerning the federal, state, local or other tax consequences to them
of the purchase, ownership and disposition of the certificates offered
hereunder.
The following discussion addresses securities of four general types: (1)
certificates ("REMIC Certificates") representing interests in a trust fund, or a
portion thereof, that the trustee will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 860G (the
"REMIC Provisions") of the Internal Revenue Code of 1986 (the "Code"), (2)
certificates ("Grantor Trust Certificates") representing interests in a trust
fund ("Grantor Trust Fund") as to which no such election
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will be made, (3) certificates ("Partnership Certificates") representing
interests in a trust fund ("Partnership Trust Fund") which is treated as a
partnership for federal income tax purposes, and (4) certificates ("Debt
Certificates") representing indebtedness of a Partnership trust fund for federal
income tax purposes. The prospectus supplement for each series of certificates
will indicate which of the foregoing treatments will apply to such series and,
if a REMIC election (or elections) will be made for the related trust fund, will
identify all "regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, references to a "Certificateholder" or a
"holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the certificates.
REMICS
CLASSIFICATION OF REMICS
Upon the issuance of each series of REMIC certificates, Thacher Proffitt
& Wood, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related trust fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC certificates offered with respect thereto
will be considered to evidence ownership of "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC Residual Certificates") in that
REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
trust fund's income for the period in which the requirements for such status are
not satisfied. The Pooling and Servicing Agreement with respect to each REMIC
will include provisions designed to maintain the trust fund's status as a REMIC
under the REMIC Provisions. It is not anticipated that the status of any trust
fund as a REMIC will be inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B)
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of the Code to the extent that such certificates are treated as "real estate
assets" within the meaning of Section 856(c)(4)(A) of the Code. In addition, the
REMIC Regular Certificates will be "qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code. The determination as to the percentage of the
REMIC's assets that constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC during such
calendar quarter. The REMIC will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans,
payments on mortgage loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the mortgage loans, or whether such assets, to the
extent not invested in assets described in the foregoing sections, otherwise
would receive the same treatment as the mortgage loans for purposes of all of
the foregoing sections. In addition, in some instances mortgage loans may not be
treated entirely as assets described in the foregoing sections of the Code. If
so, the related prospectus supplement will describe the mortgage loans that may
not be so treated. The REMIC Regulations do provide, however, that cash received
from payments on mortgage loans held pending distribution is considered part of
the mortgage loans for purposes of Section 856(c)(4)(A) of the Code.
Furthermore, foreclosure property will qualify as "real estate assets" under
Section 856(c)(4)(A) of the Code.
TIERED REMIC STRUCTURES
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related trust fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of REMIC Certificates, Thacher Proffitt & Wood, counsel to the Depositor,
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Certificates issued by the Tiered
REMICs, respectively, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code,
and "loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on such certificates is interest described
in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL
Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
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ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the "constant yield" method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount. Regulations
have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular certificates
will be consistent with this standard and will be disclosed in the related
prospectus supplement. However, neither the Depositor, nor the master servicer
will make any representation that the mortgage loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular certificates will be the
first cash price at which a substantial amount of REMIC Regular certificates of
that class is sold, excluding sales to bond houses, brokers and underwriters. If
less than a substantial amount of a particular class of REMIC Regular
certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest."
"Qualified stated interest" is interest that is unconditionally payable at least
annually, during the entire term of the instrument, at a single fixed rate, or
at a "qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such certificates, the related prospectus supplement will describe the manner in
which such rules will be applied with respect to those certificates in preparing
information returns to the certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period"
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(as defined below) for original issue discount is each monthly period that ends
on the day prior to each distribution date, in some cases, as a consequence of
this "long first accrual period," some or all interest payments may be required
to be included in the stated redemption price of the REMIC Regular Certificate
and accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
distribution date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns to the certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate, and not as a separate asset the cost of which is
recovered entirely out of interest received on the next distribution date, and
that portion of the interest paid on the first distribution date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first distribution date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first distribution date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (a) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (b) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "Taxation
of Owners of REMIC Regular certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related prospectus supplement, each period that ends on a date that corresponds
to the day prior to each distribution date and begins on
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the first day following the immediately preceding accrual period, or in the case
of the first such period, begins on the Closing Date, a calculation will be made
of the portion of the original issue discount that accrued during such accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (1) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions remaining to be
made on the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on such REMIC Regular Certificate during the accrual period
of amounts included in the stated redemption price, over (2) the adjusted issue
price of such REMIC Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence will be calculated (2) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the mortgage loans being
prepaid at a rate equal to the Prepayment Assumption, (2) using a discount rate
equal to the original yield to maturity of the certificate and (3) taking into
account events (including actual prepayments) that have occurred before the
close of the accrual period. For these purposes, the original yield to maturity
of the certificate will be calculated based on its issue price and assuming that
distributions on the certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price or, in the case of the first accrual period,
the issue price, of such certificate at the beginning of the accrual period
which includes such day and (2) the daily portions of original issue discount
for all days during such accrual period prior to such day.
MARKET DISCOUNT
A Certificateholder that purchases a REMIC Regular Certificate at a
market discount, that is, in the case of a REMIC Regular Certificate issued
without original issue discount, at a purchase price less than its remaining
stated principal amount, or in the case of a REMIC Regular Certificate issued
with original issue discount, at a purchase price less than its adjusted issue
price will recognize gain upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent. A certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) in income as interest,
and to amortize premium, based on a
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constant yield method. If such an election were made with respect to a REMIC
Regular Certificate with market discount, the certificateholder would be deemed
to have made an election to include currently market discount in income with
respect to all other debt instruments having market discount that such
certificateholder acquires during the taxable year of the election or
thereafter, and possibly previously acquired instruments. Similarly, a
certificateholder that made this election for a certificate that is acquired at
a premium would be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
certificateholder owns or acquires. SEE "TAXATION OF OWNERS OF REMIC REGULAR
CERTIFICATES--PREMIUM" BELOW. Each of these elections to accrue interest,
discount and premium with respect to a certificate on a constant yield method or
as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular certificates should
accrue, at the Certificateholder's option: (1) on the basis of a constant yield
method, (2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (3) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
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Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM
A REMIC Regular Certificate purchased at a cost, excluding any portion
of such cost attributable to accrued qualified stated interest, greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a REMIC Regular Certificate may elect under Section
171 of the Code to amortize such premium under the constant yield method over
the life of the certificate. If made, such an election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, rather than as a separate interest deduction. The
OID Regulations also permit certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the certificateholder as having made the election to amortize premium
generally. See "Taxation of Owners of REMIC Regular certificates--Market
Discount" above. The Committee Report states that the same rules that apply to
accrual of market discount (which rules will require use of a Prepayment
Assumption in accruing market discount with respect to REMIC Regular
certificates without regard to whether such certificates have original issue
discount) will also apply in amortizing bond premium under Section 171 of the
Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC
Regular Certificates and noncorporate holders of the REMIC Regular Certificates
that acquire such certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their certificates become wholly or partially worthless as the
result of one or more realized losses on the mortgage loans. However, it appears
that a noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's certificate becomes wholly worthless
(i.e., until its outstanding principal balance has been reduced to zero) and
that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that as the result of a realized loss
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
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TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
Although a REMIC is a separate entity for federal income tax purposes, a
REMIC generally is not subject to entity-level taxation, except with regard to
prohibited transactions and certain other transactions. See "--Prohibited
Transactions Tax and Other Possible REMIC Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual certificates were treated for federal income tax
purposes as direct ownership interests in the mortgage loans or as debt
instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income, or net loss, of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce, or increase, the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than, or less than, the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
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The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions," and "noneconomic" residual interests discussed below. The fact that
the tax liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
TAXABLE INCOME OF THE REMIC
The taxable income of the REMIC will equal the income from the mortgage
loans and other assets of the REMIC plus any cancellation of indebtedness income
due to the allocation of realized losses to REMIC Regular Certificates, less the
deductions allowed to the REMIC for interest, including original issue discount
and reduced by any premium on issuance, on the REMIC Regular Certificates (and
any other class of REMIC Certificates constituting "regular interests" in the
REMIC not offered hereby), amortization of any premium on the mortgage loans,
bad debt losses with respect to the mortgage loans and, except as described
below, for servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates or, if a class of REMIC Certificates is not sold
initially, their fair market values. Such aggregate basis will be allocated
among the mortgage loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount."
The issue price of a REMIC Certificate received in exchange for an interest in
the mortgage loans or other property will equal the fair market value of such
interests in the mortgage loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the
trustee may be required to estimate the fair market value of such interests in
order to determine the basis of the REMIC in the mortgage loans and other
property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to mortgage loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates, that is, under the constant yield method taking into account the
Prepayment Assumption. However, a REMIC that acquires loans at a market discount
must include such market discount in income currently, as it accrues, on a
constant yield basis. See "--Taxation of Owners of REMIC Regular Certificates"
above, which describes a method for accruing such discount income that is
analogous to that required to be used by a REMIC as to mortgage loans with
market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount, or
premium, to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than, or greater than, its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the
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method described above for accruing original issue discount on the REMIC Regular
Certificates. It is anticipated that each REMIC will elect under Section 171 of
the Code to amortize any premium on the mortgage loans. Premium on any mortgage
loan to which such election applies may be amortized under a constant yield
method, presumably taking into account a Prepayment Assumption. Further, such an
election would not apply to any mortgage loan originated on or before September
27, 1985. Instead, premium on such a mortgage loan should be allocated among the
principal payments thereon and be deductible by the REMIC as those payments
become due or upon the prepayment of such mortgage loan.
A REMIC will be allowed deductions for interest, including original
issue discount, on the REMIC Regular Certificates, including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby, equal to the deductions that would be allowed if the REMIC Regular
Certificates, including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby, were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount," except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates, including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby, described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. SEE "--POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED
DEDUCTIONS" BELOW. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such REMIC Residual Certificate, increased by amounts included
in the income of the REMIC Residual Certificateholder and decreased (but not
below zero) by distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its
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REMIC Residual Certificate as of the close of such calendar quarter (determined
without regard to such net loss). Any loss that is not currently deductible by
reason of this limitation may be carried forward indefinitely to future calendar
quarters and, subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of REMIC Residual
Certificateholders to deduct net losses may be subject to additional limitations
under the Code, as to which REMIC Residual Certificateholders should consult
their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (a) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (b) the sum of the "daily accruals" (as defined below) for each
day during such quarter that such REMIC Residual Certificate was held by such
REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual
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Certificate before the beginning of such quarter. The issue price of a REMIC
Residual Certificate is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the REMIC Residual
Certificates were sold. The "long-term Federal rate" is an average of current
yields on Treasury securities with a remaining term of greater than nine years,
computed and published monthly by the IRS.
For REMIC Residual Certificateholders, excess inclusions (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and alternative minimum taxable income may not be less
than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the alternative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required liquidation provided for in the REMIC's organizational documents, (1)
the present value of the expected future distributions (discounted using the
"applicable Federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue with respect to
the REMIC Residual Certificate, which rate is computed and published monthly by
the IRS) on the REMIC Residual Certificate equals at least the present value of
the expected tax on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the
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assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee, as to which the transferor is
also required to make a reasonable investigation to determine such transferee's
historic payment of its debts and ability to continue to pay its debts as they
come due in the future. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a purported transfer
of such REMIC Residual Certificate by such a purchaser to another purchaser at
some future date may be disregarded in accordance with the above-described rules
which would result in the retention of tax liability by such purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES
On December 24, 1996, the IRS released final regulations (the
"Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, a REMIC Residual Certificate issued after January 4, 1995 is not
treated as a security and thus may not be marked to market. Prospective
purchasers of a REMIC Residual Certificate should consult their tax advisors
regarding the possible application of the mark-to-market requirement to REMIC
Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Fees and expenses of a REMIC generally will be allocated to the holders
of the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Except as stated in the
related prospectus supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (1) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (2) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (1) 3% of the excess of the individual's
adjusted gross income over such amount or (2) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may
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be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should carefully
consult with their own tax advisors prior to making an investment in such
certificates.
SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions."
Except as provided in the following four paragraphs, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (1) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the certificate
based on the application of the Prepayment Assumption to such certificate, which
rate is computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular Certificate, over (2) the amount of ordinary
income actually includible in the seller's income prior to such sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction
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that is recharacterized as ordinary income generally will not exceed the amount
of interest that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of a mortgage loan, the receipt of income from a source other than a
mortgage loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the mortgage loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related prospectus supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will
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be borne by the related master servicer or trustee in either case out of its own
funds, provided that the master servicer or the trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the master servicer's or the trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
master servicer or the trustee will be charged against the related trust fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (1) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess inclusions
with respect to such REMIC Residual Certificate for periods after the transfer
and (2) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions must be determined as of the date that the
REMIC Residual Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (1) residual interests in such entity are not held by disqualified
organizations and (2) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in the Pooling and Servicing Agreement, and
will be discussed more fully in any prospectus supplement relating to the
offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (1) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization. For taxable years beginning after
December 31, 1997, notwithstanding the preceding two sentences, in the case of a
REMIC Residual Certificate held by an "electing large partnership," all
interests in such partnership shall be treated as held by disqualified
organizations (without regard to whether the record holders of the partnership
furnish statements described in the preceding sentence) and the amount that
would be subject to tax under the second preceding sentence is excluded from the
gross income of the partnership (in lieu of a deduction in the amount of such
tax generally allowed to pass-through entities).
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For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or Freddie Mac, (2) any organization (other than a cooperative
described in Section 521 of the Code) that is exempt from federal income tax,
unless it is subject to the tax imposed by Section 511 of the Code or (3) any
organization described in Section 1381(a)(2)(C) of the Code. For these purposes,
a "pass-through entity" means any regulated investment company, real estate
investment trust, trust, partnership or certain other entities described in
Section 860E(e)(6) of the Code. In addition, a person holding an interest in a
pass-through entity as a nominee for another person will, with respect to such
interest, be treated as a pass-through entity.
TERMINATION
A REMIC will terminate immediately after the distribution date following
receipt by the REMIC of the final payment in respect of the mortgage loans or
upon a sale of the REMIC's assets following the adoption by the REMIC of a plan
of complete liquidation. The last distribution on a REMIC Regular Certificate
will be treated as a payment in retirement of a debt instrument. In the case of
a REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should (but may not)
be treated as realizing a loss equal to the amount of such difference, and such
loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and REMIC Residual Certificateholders
will be treated as partners. Unless otherwise stated in the related prospectus
supplement, the trustee will file REMIC federal income tax returns on behalf of
the related REMIC, and under the terms of the related Agreement, will be
irrevocably appointed by the holders of the largest percentage interest in the
related REMIC Residual Certificates as their agent to perform all of the duties
of the "tax matters person" with respect to the REMIC in all respects.
The trustee, as the tax matters person or as agent for the tax matters
person, subject to certain notice requirements and various restrictions and
limitations, generally will have the authority to act on behalf of the REMIC and
the REMIC Residual Certificateholders in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC Residual Certificateholders generally
will be required to report such REMIC items consistently with their treatment on
the REMIC's tax return and may in some circumstances be bound by a settlement
agreement between the trustee, as the tax matters person or as agent for the tax
matters person, and the IRS concerning any such REMIC item. Adjustments made to
the REMIC tax return may require a REMIC Residual Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of a
REMIC Residual Certificateholder's return. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
the REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and
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certain other non-individuals will be provided interest and original issue
discount income information and the information set forth in the following
paragraph upon request in accordance with the requirements of the applicable
regulations. The information must be provided by the later of 30 days after the
end of the quarter for which the information was requested, or two weeks after
the receipt of the request. The REMIC must also comply with rules requiring a
REMIC Regular Certificate issued with original issue discount to disclose on its
face the amount of original issue discount and the issue date, and requiring
such information to be reported to the IRS. Reporting with respect to the REMIC
Residual Certificates, including income, excess inclusions, investment expenses
and relevant information regarding qualification of the REMIC's assets will be
made as required under the Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
Unless otherwise specified in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the trustee.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax"
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the "New Withholding
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Withholding
Regulations attempt to unify certification requirements and modify reliance
standards. The New Withholding Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their tax advisors regarding the New
Withholding Regulations.
FOREIGN INVESTORS IN REMIC CERTIFICATES
A REMIC Regular Certificateholder that is not a "United States person"
(as defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC Regular Certificate will not, unless otherwise disclosed in the
related prospectus supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent
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necessary with certain identification requirements (including delivery of a
statement, signed by the certificateholder under penalties of perjury,
certifying that such certificateholder is not a United States person and
providing the name and address of such certificateholder). For these purposes,
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations), or an estate
whose income is subject to United States federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. To the extent prescribed in regulations by the Secretary of the
Treasury, which regulations have not yet been issued, a trust which was in
existence on August 20, 1996 (other than a trust treated as owned by the grantor
under subpart E of part I of subchapter J of chapter 1 of the Code), and which
was treated as a United States person on August 19, 1996, may elect to continue
to be treated as a United States person notwithstanding the previous sentence.
It is possible that the IRS may assert that the foregoing tax exemption should
not apply with respect to a REMIC Regular Certificate held by a REMIC Residual
Certificateholder that owns directly or indirectly a 10% or greater interest in
the REMIC Residual Certificates. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such holder may be subject to a tax rate of 30%,
subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Unless otherwise stated in the related prospectus supplement, transfers
of REMIC Residual Certificates to investors that are not United States persons
will be prohibited under the related Pooling and Servicing Agreement.
NOTES
On or prior to the date of the related prospectus supplement with
respect to the proposed issuance of each series of notes, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion to the effect that,
assuming compliance with all provisions of the Indenture, Owner Trust Agreement
and certain related documents and upon issuance of the notes, for federal income
tax purposes (1) the notes will be treated as indebtedness and (2) the Issuer,
as created pursuant to the terms and conditions of the Owner Trust Agreement,
will not be characterized as an association (or publicly traded partnership)
taxable as a corporation or as a taxable mortgage pool. The following discussion
is based in part upon the OID Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the notes. For purposes of this tax
discussion, references to a "Noteholder" or a "holder" are to the beneficial
owner of a Note.
STATUS AS REAL PROPERTY LOANS
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Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (ii) notes held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(4)(A) and interest on notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (1)
income reportable on the notes is not required to be reported under the accrual
method unless the holder otherwise used the accrual method and (2) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the notes. See "--REMICs
- --Taxation of Owners of REMIC Regular Certificates" and "-- Sales of REMIC
Certificates."
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS
On or prior to the date of the related prospectus supplement with
respect to the proposed issuance of each series of Grantor Trust Certificates,
Thacher Proffitt & Wood, counsel to the Depositor, will deliver its opinion to
the effect that, assuming compliance with all provisions of the related Pooling
and Servicing Agreement and upon issuance of such Grantor Trust Certificates,
the related Grantor Trust Fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code and not as a partnership or an
association taxable as a corporation.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
mortgage loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
mortgage loans constituting the related Grantor Trust Fund (net of normal
administration fees and any Spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
In the case of Grantor Trust Fractional Interest certificates, unless
otherwise disclosed in the related prospectus supplement and subject to the
discussion below with respect to Buydown Mortgage Loans, counsel to the
Depositor will deliver an opinion that, in general, Grantor Trust Fractional
Interest Certificates will represent interests in (1) "loans . . . secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code; (2) "obligation[s] (including any participation or Certificate of
beneficial ownership therein) which . . .[are] principally secured by an
interest in real property" within the meaning of Section 860G(a)(3) of the Code;
and (3) "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code, in each case to the extent the mortgage loans qualify for such treatment.
In addition, counsel to the Depositor will deliver an opinion that interest on
Grantor Trust
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Fractional Interest Certificates will to the same extent be considered "interest
on obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may include Buydown
Mortgage Loans. The characterization of an investment in Buydown Mortgage Loans
will depend upon the precise terms of the related Buydown Agreement, but to the
extent that such Buydown Mortgage Loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. No directly applicable precedents exist
with respect to the federal income tax treatment or the characterization of
investments in Buydown Mortgage Loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes Buydown Mortgage Loans.
GRANTOR TRUST STRIP CERTIFICATES
Even if Grantor Trust Strip Certificates evidence an interest in a
Grantor Trust Fund consisting of mortgage loans that are "loans . . . secured by
an interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code, and "real estate assets" within the meaning of Section 856(c)(4)(A) of
the Code, and the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, it is unclear whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized. However, the policies underlying such
sections (namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Depositor will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which . .
.[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
Holders of a particular series of Grantor Trust Fractional Interest
Certificates generally will be required to report on their federal income tax
returns their shares of the entire income from the mortgage loans (including
amounts used to pay reasonable servicing fees and other expenses) and will be
entitled to deduct their shares of any such reasonable servicing fees and other
expenses. Because of stripped interests, market or original issue discount, or
premium, the amount includible in income on account of a Grantor Trust
Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the mortgage loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest
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Certificates who are subject to the limitations of either Section 67 or Section
68 of the Code may be substantial. Further, certificateholders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income. Although it is not entirely clear, it appears that in
transactions in which multiple classes of Grantor Trust Certificates (including
Grantor Trust Strip Certificates) are issued, such fees and expenses should be
allocated among the classes of Grantor Trust Certificates using a method that
recognizes that each such class benefits from the related services. In the
absence of statutory or administrative clarification as to the method to be
used, it currently is intended to base information returns or reports to the IRS
and Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the mortgage loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the mortgage loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related prospectus supplement
will include information regarding servicing fees paid to the master servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY
If the stripped bond rules apply, each Grantor Trust Fractional Interest
Certificate will be treated as having been issued with "original issue discount"
within the meaning of Section 1273(a) of the Code, subject, however, to the
discussion below regarding the treatment of certain stripped bonds as market
discount bonds and the discussion regarding de minimis market discount. See
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates-Market
Discount" below. Under the stripped bond rules, the holder of a Grantor Trust
Fractional Interest Certificate (whether a cash or accrual method taxpayer) will
be required to report interest income from its Grantor Trust Fractional Interest
Certificate for each month in an amount equal to the income that accrues on such
certificate in that month calculated under a constant yield method, in
accordance with the rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest," if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest." In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be
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computed at the rate (compounded based on the regular interval between payment
dates) that, if used to discount the holder's share of future payments on the
mortgage loans, would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In computing yield
under the stripped bond rules, a Certificateholder's share of future payments on
the mortgage loans will not include any payments made in respect of any
ownership interest in the mortgage loans retained by the Depositor, the master
servicer, any subservicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
To the extent the Grantor Trust Fractional Interest Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, for taxable years beginning after August 5,
1997, Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption. It is unclear whether those provisions would be
applicable to the Grantor Trust Fractional Interest Certificates that do not
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, or for taxable years beginning prior to
August 5, 1997, whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain, if
a prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Fractional Interest Certificate or, with respect to any holder, at the
time of purchase of the Grantor Trust Fractional Interest Certificate by that
holder. Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates and, in particular, whether a prepayment
assumption should be used in reporting original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the mortgage loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the mortgage loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
certificateholder's interest in the mortgage loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
It is currently intended to base information reports or returns to the
IRS and Certificateholders in transactions subject to the stripped bond rules on
a prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related prospectus supplement and on a constant yield computed using a
representative initial offering price for each class of certificates. However,
neither the
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Depositor nor the trustee will make any representation that the mortgage loans
will in fact prepay at a rate conforming to such Prepayment Assumption or any
other rate and certificateholders should bear in mind that the use of a
representative initial offering price will mean that such information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought at
that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the mortgage loans, the related prospectus supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the mortgage loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY
Subject to the discussion below on original issue discount, if the
stripped bond rules do not apply to a Grantor Trust Fractional Interest
Certificate, the certificateholder will be required to report its share of the
interest income on the mortgage loans in accordance with such
Certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in mortgage loans issued with original issue
discount.
The original issue discount, if any, on the mortgage loans will equal
the difference between the stated redemption price of such mortgage loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such mortgage loan other than
"qualified stated interest." "Qualified stated interest" is interest that is
unconditionally payable at least annually at a single fixed rate, or at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such
mortgage loan. In general, the issue price of a mortgage loan will be the amount
received by the borrower from the lender under the terms of the mortgage loan,
less any "points" paid by the borrower, and the stated redemption price of a
mortgage loan will equal its principal amount, unless the mortgage loan provides
for an initial below-market rate of interest or the acceleration or the deferral
of interest payments. The determination as to whether original issue discount
will be considered to be de minimis will be calculated using the same test
described in the REMIC discussion. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which such
rules will be applied with respect to those mortgage
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loans by the master servicer or the trustee in preparing information returns to
the Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. Section
1272(a)(6) of the Code requires that a prepayment assumption be made in
computing yield with respect to any pool of debt instruments the yield on which
may be affected by reason of prepayments. Accordingly, for certificates backed
by such pools, it is intended to base information reports and returns to the IRS
and certificateholders for taxable years beginning after August 5, 1997, on the
use of a prepayment assumption. However, in the case of certificates not backed
by such pools or with respect to taxable years beginning prior to August 5,
1997, it currently is not intended to base such reports and returns on the use
of a prepayment assumption. Certificateholders are advised to consult their own
tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related prospectus
supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to mortgage loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such certificate's allocable portion of the aggregate remaining stated
redemption price of the mortgage loans held in the related trust fund will also
be required to include in gross income such certificate's daily portions of any
original issue discount with respect to such mortgage loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such certificate's
allocable portion of the aggregate "adjusted issue prices" of the mortgage loans
held in the related trust fund, approximately in proportion to the ratio such
excess bears to such certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such mortgage loans. The adjusted
issue price of a mortgage loan on any given day equals the sum of (1) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such mortgage loan at the beginning of the accrual period that
includes such day and (2) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
mortgage loan at the beginning of any accrual period will equal the issue price
of such mortgage loan, increased by the aggregate amount of original issue
discount with respect to such mortgage loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such mortgage loan in
prior accrual periods of amounts included in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee,
except as provided in the related prospectus supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
such holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT
If the stripped bond rules do not apply to the Grantor Trust Fractional
Interest Certificate, a Certificateholder may be subject to the market discount
rules of Sections 1276 through 1278 of the Code to the extent an interest in a
mortgage loan is considered to have been purchased at a "market discount," that
is, in the case of a mortgage loan issued without original issue discount, at a
purchase price less than its remaining stated redemption price (as defined
above, or in the case of a mortgage loan issued with original issue discount, at
a purchase price less than its adjusted issue price (as defined above). If
market discount is in excess of a de minimis amount (as described below), the
holder generally will be required
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to include in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month that has
not previously been included in income, but limited, in the case of the portion
of such discount that is allocable to any mortgage loan, to the payment of
stated redemption price on such mortgage loan that is received by (or, in the
case of accrual basis certificateholders, due to) the trust fund in that month.
A certificateholder may elect to include market discount in income currently as
it accrues (under a constant yield method based on the yield of the certificate
to such holder) rather than including it on a deferred basis in accordance with
the foregoing under rules similar to those described in "--Taxation of Owners of
REMIC Regular Certificates--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report will apply. Under those rules, in each
accrual period market discount on the mortgage loans should accrue, at the
Certificateholder's option: (1) on the basis of a constant yield method, (2) in
the case of a mortgage loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the mortgage loan as of the beginning of the accrual period, or
(3) in the case of a mortgage loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a mortgage loan purchased at a discount in the
secondary market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above, with the exception that it is less
likely that a prepayment assumption will be used for purposes of such rules with
respect to the mortgage
loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues.
PREMIUM
If a Certificateholder is treated as acquiring the underlying mortgage
loans at a premium, that is, at a price in excess of their remaining stated
redemption price, such certificateholder may elect under Section 171 of the Code
to amortize using a constant yield method the portion of such premium allocable
to
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mortgage loans originated after September 27, 1985. Amortizable premium is
treated as an offset to interest income on the related debt instrument, rather
than as a separate interest deduction. However, premium allocable to mortgage
loans originated before September 28, 1985 or to mortgage loans for which an
amortization election is not made, should be allocated among the payments of
stated redemption price on the mortgage loan and be allowed as a deduction as
such payments are made (or, for a certificateholder using the accrual method of
accounting, when such payments of stated redemption price are due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
mortgage loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the mortgage
loan that is allocable to the Certificate and the portion of the adjusted basis
of the certificate that is allocable to the mortgage loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES
The "stripped coupon" rules of Section 1286 of the Code will apply to
the Grantor Trust Strip Certificates. Except as described above in "--Taxation
of Owners of Grantor Trust Fractional Interest Certificates--If Stripped Bond
Rules Apply," no regulations or published rulings under Section 1286 of the Code
have been issued and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates. Accordingly, holders of
Grantor Trust Strip Certificates should consult their own tax advisors
concerning the method to be used in reporting income or loss with respect to
such certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "Possible Application of Contingent Payment Rules" and assumes
that the holder of a Grantor Trust Strip Certificate will not own any Grantor
Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the mortgage loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Apply" above.
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As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. To the extent the
Grantor Trust Strip Certificates represent an interest in any pool of debt
instruments the yield on which may be affected by reason of prepayments, those
provisions will apply to the Grantor Trust Strip Certificates for taxable years
beginning after August 5, 1997. It is unclear whether those provisions would be
applicable to the Grantor Trust Strip Certificates that do not represent an
interest in any such pool or for taxable years beginning prior to August 5,
1997, or whether use of a prepayment assumption may be required or permitted in
the absence of such provisions. It is also uncertain, if a prepayment assumption
is used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. It currently is intended to base
information returns or reports to the IRS and certificateholders on the
Prepayment Assumption disclosed in the related prospectus supplement and on a
constant yield computed using a representative initial offering price for each
class of certificates. However, neither the Depositor nor the trustee will make
any representation that the mortgage loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate and
certificateholders should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete mortgage loans, or if the Prepayment
Assumption is not used, then when a mortgage loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such mortgage loan.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES
The coupon stripping rules' general treatment of stripped coupons is to
regard them as newly issued debt instruments in the hands of each purchaser. To
the extent that payments on the Grantor Trust Strip Certificates would cease if
the mortgage loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent payments
are not subject to the same rules as debt instruments providing for
noncontingent payments. Regulations were promulgated on June 14, 1996, regarding
contingent payment debt instruments (the "Contingent Payment Regulations"), but
it appears that Grantor Trust Strip Certificates, to the extent subject to
Section 1272(a)(6) of the Code as described above due to their similarity to
other mortgage-backed securities (such as REMIC regular interests and
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debt instruments subject to Section 1272(a)(6) of the Code) that are expressly
excepted from the application of the Contingent Payment Regulations, are or may
be excepted from such regulations. Like the OID Regulations, the Contingent
Payment Regulations do not specifically address securities, such as the Grantor
Trust Strip Certificates, that are subject to the stripped bond rules of Section
1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply the "noncontingent bond method". Under the "noncontingent bond method",
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the projected yield (as described below) of
the Grantor Trust Strip Certificate.
The projected amount of each payment is determined so that the projected
payment schedule reflects the projected yield. The projected amount of each
payment must reasonably reflect the relative expected values of the payments to
be received by the holders of a Grantor Trust Strip Certificate. The projected
yield referred to above is a reasonable rate, not less than the "applicable
Federal rate" that, as of the issue date, reflects general market conditions,
the credit quality of the issuer, and the terms and conditions of the mortgage
loans. The holder of a Grantor Trust Strip Certificate would be required to
include as interest income in each month the adjusted issue price of the Grantor
Trust Strip Certificate at the beginning of the period multiplied by the
projected yield, and would add to, or subtract from, such income any variation
between the payment actually received in such month and payment originally
projected to be made in such month.
Assuming that a prepayment assumption were used, if the Contingent
Payment Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES
Any gain or loss equal to the difference between the amount realized on
the sale or exchange of a Grantor Trust Certificate and its adjusted basis,
recognized on such sale or exchange of a Grantor Trust Certificate by an
investor who holds such Grantor Trust Certificate as a capital asset, will be
capital gain or loss, except to the extent of accrued and unrecognized market
discount, which will be treated as ordinary income, and (in the case of banks
and other financial institutions) except as provided under Section 582(c) of the
Code. The adjusted basis of a Grantor Trust Certificate generally will equal its
cost, increased by any income reported by the seller (including original issue
discount and market discount income) and reduced (but not below zero) by any
previously reported losses, any amortized premium and by any distributions with
respect to such Grantor Trust Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction
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generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction. Finally, a
taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include such net capital gain in
total net investment income for that taxable year, for purposes of the rule that
limits the deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING
Except as set forth in the related prospectus supplement, the master
servicer or the trustee will furnish to each holder of a Grantor Trust
Fractional Interest Certificate with each distribution a statement setting forth
the amount of such distribution allocable to principal on the underlying
mortgage loans and to interest thereon at the related Pass-Through Rate. In
addition, the master servicer or the trustee will furnish, within a reasonable
time after the end of each calendar year, to each holder of a Grantor Trust
Certificate who was such a holder at any time during such year, information
regarding the amount of servicing compensation received by the master servicer
and sub-servicer (if any) and such other customary factual information as the
master servicer or the trustee deems necessary or desirable to enable holders of
Grantor Trust Certificates to prepare their tax returns and will furnish
comparable information to the IRS as and when required by law to do so. Because
the rules for accruing discount and amortizing premium with respect to the
Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the trust fund's information reports of such
items of income and expense. Moreover, such information reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders that bought their certificates at the
representative initial offering price used in preparing such reports.
Except as disclosed in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the master servicer or the trustee.
BACKUP WITHHOLDING
In general, the rules described in "--REMICS--Backup Withholding with
Respect to REMIC Certificates" will also apply to Grantor Trust Certificates.
FOREIGN INVESTORS
In general, the discussion with respect to REMIC Regular Certificates in
"REMICS--Foreign Investors in REMIC Certificates--REMIC Regular Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, except as disclosed in the related prospectus supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in such
discussion, only to the extent the related mortgage loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held
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in connection with a Certificateholder's trade or business in the United States,
such Grantor Trust Certificate will not be subject to United States estate taxes
in the estate of a non-resident alien individual.
PARTNERSHIP TRUST FUNDS
CLASSIFICATION OF PARTNERSHIP TRUST FUNDS
With respect to each series of Partnership Certificates or Debt
Certificates, Thacher Proffitt & Wood, counsel to the Depositor, will deliver
its opinion that the trust fund will not be a taxable mortgage pool or an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the related Pooling and Servicing Agreement and related documents
will be complied with, and on counsel's conclusions that (1) the trust fund will
not have certain characteristics necessary for a business trust to be classified
as an association taxable as a corporation and (2) the nature of the income of
the trust fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
If the trust fund were taxable as a corporation for federal income tax
purposes, the trust fund would be subject to corporate income tax on its taxable
income. The trust fund's taxable income would include all its income on the
related mortgage loans, possibly reduced by its interest expense on the Debt
Certificates. Any such corporate income tax could materially reduce cash
available to make payments on the Debt Certificates and distributions on the
Partnership Certificates and certificateholders could be liable for any such tax
that is unpaid by the trust fund.
CHARACTERIZATION OF INVESTMENTS IN PARTNERSHIP CERTIFICATES AND DEBT
CERTIFICATES.
For federal income tax purposes, (1) Partnership Certificates and Debt
Certificates held by a thrift institution taxed as a domestic building and loan
association will not constitute "loans ... secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v); (2) interest on
Debt Certificates held by a real estate investment trust will not be treated as
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B), and Debt
Certificates held by a real estate investment trust will not constitute "real
estate assets" or "Government securities" within the meaning of Code Section
856(c)(4)(A), but Partnership Certificates held by a real estate investment
trust will qualify under those sections based on the real estate investments
trust's proportionate interest in the assets of the Partnership trust fund based
on capital accounts; and (3) Partnership Certificates and Debt Certificates held
by a regulated investment company will not constitute "Government securities"
within the meaning of Code Section 851(b)(4)(A)(i).
TAXATION OF DEBT CERTIFICATEHOLDERS
TREATMENT OF THE DEBT CERTIFICATES AS INDEBTEDNESS.
The Depositor will agree, and the certificateholders will agree by their
purchase of Debt Certificates, to treat the Debt Certificates as debt for
federal income tax purposes. No regulations, published rulings, or judicial
decisions exist that discuss the characterization for federal income tax
purposes of securities with terms substantially the same as the Debt
Certificates. However, with respect to each series of Debt Certificates, Thacher
Proffitt & Wood, counsel to the Depositor, will deliver its opinion that the
Debt Certificates will be classified as indebtedness for federal income tax
purposes. The discussion below assumes this characterization of the Debt
Certificates is correct.
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If, contrary to the opinion of counsel, the IRS successfully asserted
that the Debt Certificates were not debt for federal income tax purposes, the
Debt Certificates might be treated as equity interests in the Partnership Trust.
If so, the Partnership Trust Fund might be taxable as a corporation with the
adverse consequences described above (and the taxable corporation would not be
able to deduct interest on the Debt Certificates).
Debt Certificates generally will be subject to the same rules of
taxation as REMIC Regular Certificates issued by a REMIC, as described above,
except that (1) income reportable on Debt Certificates is not required to be
reported under the accrual method unless the holder otherwise uses the accrual
method and (2) the special rule treating a portion of the gain on sale or
exchange of a REMIC Regular Certificate as ordinary income is inapplicable to
Debt Certificates. See "-- REMICs -- Taxation of Owners of REMIC Regular
Certificates" and "--Sales of REMIC Certificates."
TAXATION OF OWNERS OF PARTNERSHIP CERTIFICATES
TREATMENT OF THE PARTNERSHIP TRUST FUND AS A PARTNERSHIP.
If so specified in the applicable prospectus supplement, the Depositor
will agree, and the certificateholders will agree by their purchase of
Certificates, to treat the Partnership Trust Fund as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the Partnership Trust Fund, the partners of the partnership being the
certificateholders (including the Depositor), and the Debt Certificates (if any)
being debt of the partnership. However, the proper characterization of the
arrangement involving the Partnership Trust Fund, the Partnership Certificates,
the Debt Certificates, and the Depositor is not clear, because there is no
authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Certificates have certain
features characteristic of debt, the Partnership Certificates might be
considered debt of the Depositor or the Partnership Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Partnership Certificates as equity in a partnership, described below. The
following discussion assumes that the Partnership Certificates represent equity
interests in a partnership.
PARTNERSHIP TAXATION.
As a partnership, the Partnership Trust Fund will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Partnership Trust Fund. It is anticipated
that the Partnership Trust Fund's income will consist primarily of interest
earned on the mortgage loans (including appropriate adjustments for market
discount, original issue discount and bond premium) as described above under "--
Grantor Trust Funds -- Taxation of Owners of Grantor Trust Fractional Interest
Certificates - If Stripped Bond Ruled Do Not Apply--", "-- Market Discount" and
"--Premium") and any gain upon collection or disposition of mortgage loans. The
Partnership Trust Fund's deductions will consist primarily of interest accruing
with respect to the Debt Certificates, servicing and other fees, and losses or
deductions upon collection or disposition of Debt Certificates.
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The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Pooling and Servicing Agreement and related documents). The Pooling
and Servicing Agreement will provide, in general, that the Certificateholders
will be allocated taxable income of the Partnership Trust Fund for each Due
Period equal to the sum of (1) the interest that accrues on the Partnership
Certificates in accordance with their terms for such Due Period, including
interest accruing at the applicable pass-through rate for such Due Period and
interest on amounts previously due on the Partnership Certificates but not yet
distributed; (2) any Partnership Trust Fund income attributable to discount on
the mortgage loans that corresponds to any excess of the principal amount of the
Partnership Certificates over their initial issue price; and (3) any other
amounts of income payable to the certificateholders for such Due Period. Such
allocation will be reduced by any amortization by the Partnership Trust Fund of
premium on mortgage loans that corresponds to any excess of the issue price of
Partnership Certificates over their principal amount. All remaining taxable
income of the Partnership Trust Fund will be allocated to the Depositor. Based
on the economic arrangement of the parties, this approach for allocating
Partnership Trust Fund income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to certificateholders. Moreover, even
under the foregoing method of allocation, certificateholders may be allocated
income equal to the entire pass-through rate plus the other items described
above even though the Trust Fund might not have sufficient cash to make current
cash distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Partnership Certificates on the accrual basis
and certificateholders may become liable for taxes on Partnership Trust Fund
income even if they have not received cash from the Partnership Trust Fund to
pay such taxes.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
A share of expenses of the Partnership Trust Fund (including fees of the
master servicer but not interest expense) allocable to an individual, estate or
trust certificateholder would be miscellaneous itemized deductions subject to
the limitations described above under "--Grantor Trust Funds -- Taxation of
Owners of Grantor Trust Fractional Interest Certificates." Accordingly, such
deductions might be disallowed to the individual in whole or in part and might
result in such holder being taxed on an amount of income that exceeds the amount
of cash actually distributed to such holder over the life of the Partnership
Trust Fund.
Discount income or premium amortization with respect to each mortgage
loan would be calculated in a manner similar to the description above under "--
Grantor Trust Funds -- Taxation of Owners of Grantor Trust Fractional Interest
Certificates - If Stripped Bond Rules Do Not Apply." Notwithstanding such
description, it is intended that the Partnership Trust Fund will make all tax
calculations relating to income and allocations to certificateholders on an
aggregate basis with respect to all mortgage loans held by the Partnership Trust
Fund rather than on a mortgage loan-by-mortgage loan basis. If the IRS were to
require that such calculations be made separately for each mortgage loan, the
Partnership Trust Fund might be required to incur additional expense, but it is
believed that there would not be a material adverse effect on
certificateholders.
DISCOUNT AND PREMIUM.
Unless indicated otherwise in the applicable prospectus supplement, it
is not anticipated that the mortgage loans will have been issued with original
issue discount and, therefore, the Partnership Trust
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Fund should not have original issue discount income. However, the purchase price
paid by the Partnership Trust Fund for the mortgage loans may be greater or less
than the remaining principal balance of the mortgage loans at the time of
purchase. If so, the mortgage loans will have been acquired at a premium or
discount, as the case may be. See "--Grantor Trust Funds -- Taxation of Owners
of Grantor Trust Fractional Interest Certificates -- Market Discount" and
"Premium." (As indicated above, the Partnership Trust Fund will make this
calculation on an aggregate basis, but might be required to recompute it on a
mortgage loan-by-mortgage loan basis).
If the Partnership Trust Fund acquires the mortgage loans at a market
discount or premium, the Partnership Trust Fund will elect to include any such
discount in income currently as it accrues over the life of the mortgage loans
or to offset any such premium against interest income on the mortgage loans. As
indicated above, a portion of such market discount income or premium deduction
may be allocated to certificateholders.
SECTION 708 TERMINATION.
Under Section 708 of the Code, the Partnership Trust Fund will be deemed
to terminate for federal income tax purposes if 50% or more of the capital and
profits interests in the Partnership Trust Fund are sold or exchanged within a
12-month period. If such a termination occurs, the Partnership Trust Fund will
be considered to distribute its assets to the partners, who would then be
treated as recontributing those assets to the Partnership Trust Fund, as a new
partnership. The Partnership Trust Fund will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Partnership Trust Fund may be subject to certain tax penalties and
may incur additional expenses if it is required to comply with those
requirements. Furthermore, the Partnership Trust Fund might not be able to
comply due to lack of data. Under proposed Treasury regulations, the foregoing
treatment would be replaced by a new regime under which a 50% or greater
transfer, as described above, would cause a deemed contribution of the assets of
a Partnership Trust Fund (the "old partnership") to a new Partnership Trust Fund
(the "new partnership") in exchange for interests in the new partnership. Such
interests would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange. It is not
known when or whether such proposed Treasury regulations will be adopted in
final (or temporary) form.
DISPOSITION OF CERTIFICATES.
Generally, capital gain or loss will be recognized on a sale of
Partnership certificates in an amount equal to the difference between the amount
realized and the seller's tax basis in the Partnership Certificates sold. A
certificateholder's tax basis in an Partnership Certificate will generally equal
the holder's cost increased by the holder's share of Partnership Trust Fund
income (includible in income) and decreased by any distributions received with
respect to such Partnership Certificate. In addition, both the tax basis in the
Partnership Certificates and the amount realized on a sale of an Partnership
Certificate would include the holder's share of the Debt Certificates and other
liabilities of the Partnership Trust Fund. A holder acquiring Partnership
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Partnership Certificates, and, upon sale or other
disposition of some of the Partnership Certificates, allocate a portion of such
aggregate tax basis to the Partnership Certificates sold (rather than
maintaining a separate tax basis in each Partnership Certificate for purposes of
computing gain or loss on a sale of that Partnership Certificate).
Any gain on the sale of an Partnership Certificate attributable to the
holder's share of unrecognized accrued market discount on the mortgage loans
would generally be treated as ordinary income to the
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holder and would give rise to special tax reporting requirements. The
Partnership Trust Fund does not expect to have any other assets that would give
rise to such special reporting considerations. Thus, to avoid those special
reporting requirements, the Partnership Trust Fund will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Partnership Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Partnership Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES.
In general, the Partnership Trust Fund's taxable income and losses will
be determined each Due Period and the tax items for a particular Due Period will
be apportioned among the certificateholders in proportion to the principal
amount of Partnership Certificates owned by them as of the close of the last day
of such Due Period. As a result, a holder purchasing Partnership Certificates
may be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a Due Period convention may not be permitted by existing
regulations. If a Due Period convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Partnership Trust Fund might be reallocated among the certificateholders.
The Depositor will be authorized to revise the Partnership Trust Fund's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
SECTION 731 DISTRIBUTIONS.
In the case of any distribution to a certificateholder, no gain will be
recognized to that certificateholder to the extent that the amount of any money
distributed with respect to such certificate exceeds the adjusted basis of such
certificateholder's interest in the Certificate. To the extent that the amount
of money distributed exceeds such certificateholder's adjusted basis, gain will
be currently recognized. In the case of any distribution to a certificateholder,
no loss will be recognized except upon a distribution in liquidation of a
certificateholder's interest. Any gain or loss recognized by a certificateholder
will be capital gain or loss.
SECTION 754 ELECTION.
In the event that a certificateholder sells its Partnership Certificates
at a profit (loss), the purchasing certificateholder will have a higher (lower)
basis in the Partnership certificates than the selling certificateholder had.
The tax basis of the Partnership Trust Fund's assets would not be adjusted to
reflect that higher (or lower) basis unless the Partnership Trust Fund were to
file an election under Section 754 of the Code. In order to avoid the
administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Partnership Trust Fund will not make such election. As a
result, certificateholder might be allocated a greater or lesser amount of
Partnership Trust Fund income than would be appropriate based on their own
purchase price for Partnership certificates.
ADMINISTRATIVE MATTERS.
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The trustee is required to keep or have kept complete and accurate books
of the Partnership Trust Fund. Such books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal year of the
Partnership Trust Fund will be the calendar year. The trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Partnership Trust Fund and will report each certificateholder's
allocable share of items of Partnership Trust Fund income and expense to holders
and the IRS on Schedule K-1. The trustee will provide the Schedule K-1
information to nominees that fail to provide the Partnership Trust Fund with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Partnership Trust Fund or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Certificates as a nominee at any time during a calendar year is required to
furnish the Partnership Trust Fund with a statement containing certain
information on the nominee, the beneficial owners and the Partnership
Certificates so held. Such information includes (1) the name, address and
taxpayer identification number of the nominee and (2) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Partnership Certificates that were held, bought or sold on behalf of such person
throughout the year. In addition, brokers and financial institutions that hold
Partnership Certificates through a nominee are required to furnish directly to
the trustee information as to themselves and their ownership of Partnership
Certificates. A clearing agency registered under Section 17A of the Exchange Act
is not required to furnish any such information statement to the Partnership
Trust Fund. The information referred to above for any calendar year must be
furnished to the Partnership Trust Fund on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the
Partnership Trust Fund with the information described above may be subject to
penalties.
The Depositor will be designated as the tax matters partner in the
Pooling and Servicing Agreement and, as such, will be responsible for
representing the certificateholders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Partnership Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
certificateholders, and, under certain circumstances, a certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
Partnership Trust Fund. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the Partnership Trust Fund.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS.
It is not clear whether the Partnership Trust Fund would be considered
to be engaged in a trade or business in the United States for purposes of
federal withholding taxes with respect to non-U.S. persons, because there is no
clear authority dealing with that issue under facts substantially similar to
those described herein. Although it is not expected that the Partnership Trust
Fund would be engaged in a trade or business in the United States for such
purposes, the Partnership Trust Fund will withhold as if it were so engaged in
order to protect the Partnership Trust Fund from possible adverse consequences
of a failure to withhold. The Partnership Trust Fund expects to withhold on the
portion of its taxable income that is allocable to foreign certificateholders
pursuant to Section 1446 of the Code, as if such income
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were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other foreign
holders. Amounts withheld will be deemed distributed to the foreign
certificateholders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Partnership Trust Fund to
change its withholding procedures. In determining a holder's withholding status,
the Partnership Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Partnership Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Partnership Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled to
file with the IRS a claim for refund with respect to taxes withheld by the
Partnership Trust Fund, taking the position that no taxes were due because the
Partnership Trust Fund was not engaged in a U.S. trade or business. However,
interest payment made (or accrued) to a certificateholder who is a foreign
person generally will be considered guaranteed payments to the extent such
payments are determined without regard to the income of the Partnership Trust
Fund. If these interest payments are properly characterized as guaranteed
payments, then the interest will not be considered "portfolio interest." As a
result, certificateholders who are foreign persons will be subject to United
States federal income tax and withholding tax at a rate of 30 percent, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
BACKUP WITHHOLDING.
Distributions made on the Partnership Certificates and proceeds from the
sale of the Partnership Certificates will be subject to a "backup" withholding
tax of 31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CERTIFICATEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF REMIC CERTIFICATES, GRANTOR TRUST CERTIFICATES, PARTNERSHIP
CERTIFICATES AND DEBT CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
securities offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors
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should consult their own tax advisors with respect to the various tax
consequences of investments in the securities offered hereunder.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), impose certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans subject to ERISA
("ERISA Plans") and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general and separate accounts
in which such ERISA Plans are invested. Section 4975 of the Code imposes
essentially the same prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code and on Individual
Retirement Accounts described in Section 408 of the Code (collectively, "Tax
Favored Plans"). ERISA and the Code prohibit a broad range of transactions
involving assets of ERISA Plans and Tax Favored Plans (collectively, "Plans")
and persons who have certain specified relationships to such Plans ("Parties in
Interest" within the meaning of ERISA or "Disqualified Persons" within the
meaning of the Code, collectively "Parties in Interest"), unless a statutory or
administrative exemption is available with respect to any such transaction.
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in the securities without regard to the ERISA considerations described below,
subject to the provisions of other applicable federal, state and local law. Any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Certain transactions involving the trust fund might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Plan that purchases the securities, if the mortgage loans, and other assets
included in a trust fund are deemed to be assets of the Plan. The U.S.
Department of Labor (the "DOL") has promulgated regulations at 29 C.F.R.
ss.2510.3-101 (the "DOL Regulations") defining the term "Plan Assets" for
purposes of applying the general fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code. Under the DOL
Regulations, generally, when a Plan acquires an "equity interest" in another
entity (such as the trust fund), the underlying assets of that entity may be
considered to be Plan Assets unless certain exceptions apply. Exceptions
contained in the DOL Regulations provide that a Plan's assets will not include
an undivided interest in each asset of an entity in which such Plan makes an
equity investment if: (1) the entity is an operating company; (2) the equity
investment made by the Plan is either a "publicly-offered security" that is
"widely held," both as defined in the DOL Regulations, or a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended; or (3) Benefit Plan Investors do not own 25% or more in value of any
class of equity securities issued by the entity. For this purpose, "Benefit Plan
Investors" include Plans, as well as any "employee benefit plan" (as defined in
Section 3(3) or ERISA) which is not subject to Title I of ERISA, such as
governmental plans (as defined in Section 3(32) of ERISA) and church plans (as
defined in Section 3(33) of ERISA) which have not made an election under Section
410(d) of the Code, and any entity whose underlying assets include Plan Assets
by reason of a Plan's investment in the entity. In addition, the DOL Regulations
provide that the term "equity interest" means any interest in an entity other
than an instrument which is treated as indebtedness under applicable local law
and which has no "substantial equity features". Under the DOL Regulations, Plan
Assets will be deemed to include an interest in the instrument evidencing the
equity
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interest of a Plan (such as a Certificate or a Note with "substantial equity
features"), and, because of the factual nature of certain of the rules set forth
in the DOL Regulations, Plan Assets may be deemed to include an interest in the
underlying assets of the entity in which a Plan acquires an interest (such as
the trust fund). Without regard to whether the notes are characterized as equity
interests, the purchase, sale and holding of notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if the Issuer, the
trustee or any of their respective affiliates is or becomes a Party in Interest
with respect to such Plan. Neither Plans nor persons investing Plan Assets
should acquire or hold securities in reliance upon the availability of any
exception under the DOL Regulations.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of Plan Assets and any person who
provides investment advice with respect to such Plan Assets for a fee is a
fiduciary of the investing Plan. If the mortgage loans, and other assets
included in the trust fund were to constitute Plan Assets, then any party
exercising management or discretionary control with respect to those Plan Assets
may be deemed to be a Plan "fiduciary," and thus subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing Plan. In
addition, the acquisition or holding of securities by or on behalf of a Plan or
with Plan Assets, as well as the operation of the trust fund, may constitute or
involve a prohibited transaction under ERISA and the Code unless a statutory or
administrative exemption is available.
The DOL issued an individual prohibited transactions exemption (the
"Exemption"), to certain underwriters, which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited transactions pursuant to Section
4975(a) and (b) of the Code, certain transactions, among others, relating to the
servicing and operation of mortgage pools and the initial purchase, holding and
subsequent resale of mortgage pass-through certificates underwritten by an
Underwriter (as hereinafter defined), provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations", the term "Underwriter" shall include (a) the underwriter, (b)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the underwriter Inc. and
(c) any member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to a class of
certificates.
The Exemption sets forth six general conditions which must be satisfied
for the Exemption to apply. First, the acquisition of certificates by a Plan or
with Plan Assets must be on terms that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the Exemption only applies to certificates evidencing rights and interests that
are not subordinated to the rights and interests evidenced by other certificates
of the same trust. Third, the certificates at the time of acquisition by a Plan
or with Plan Assets must be rated in one of the three highest generic rating
categories by Standard & Poor's Structured Rating Group, Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.
(collectively, the "Exemption Rating Agencies"). Fourth, the trustee cannot be
an affiliate of any member of the "Restricted Group" which consists of any
Underwriter, the Depositor, the trustee, the master servicer, any sub-servicer
and any obligor with respect to assets included in the trust fund constituting
more than 5% of the aggregate unamortized principal balance of the assets in the
trust fund as of the date of initial issuance of the certificates. Fifth, the
sum of all payments made to and retained by the Underwriter(s) must represent
not more than reasonable compensation for underwriting the certificates; the sum
of all payments made to and retained by the Depositor pursuant to the assignment
of the assets to the related trust fund must represent not more than
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the fair market value of such obligations; and the sum of all payments made to
and retained by the master servicer and any sub-servicer must represent not more
than reasonable compensation for such person's services under the related
Agreement and reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the Exemption states that the investing Plan or Plan Asset
investor must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the securities Act of 1933, as amended.
The Exemption also requires that the trust fund meet the following
requirements: (1) the trust fund must consist solely of assets of the type that
have been included in other investment pools; (2) certificates evidencing
interests in such other investment pools must have been rated in one of the
three highest generic categories of one of the Exemption Rating Agencies for at
least one year prior to the acquisition of the certificates by or on behalf of a
Plan or with Plan Assets; and (3) certificates evidencing interests in such
other investment pools must have been purchased by investors other than Plans
for at least one year prior to any acquisition of the certificates by or on
behalf of a Plan or with Plan Assets.
Any transferee of the certificates will be deemed to have represented
that either (a) such transferee is not a Plan and is not purchasing such
certificates by or on behalf of or with "Plan Assets" of any Plan or (b) the
purchase of any such Certificate by or on behalf of or with "Plan Assets" of any
Plan is permissible under applicable law, will not result in any non-exempt
prohibited transaction under ERISA or Section 4975 of the Code and will not
subject the master servicer, the Depositor or the trustee to any obligation in
addition to those undertaken in the related Agreement. A fiduciary of a Plan or
any person investing Plan Assets to purchase a certificate must make its own
determination that the conditions set forth above will be satisfied with respect
to such certificate.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with the direct or indirect sale, exchange or transfer of certificates in the
initial issuance of such certificates or the direct or indirect acquisition or
disposition in the secondary market of certificates by a Plan or with Plan
Assets or the continued holding of a certificate acquired by a Plan or with Plan
Assets pursuant to either of the foregoing. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the certificates,
an Excluded Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the Depositor or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan Assets in the
certificates is (a) a mortgagor with respect to 5% or less of the fair market
value of the trust fund assets or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
certificates by a Plan or with Plan Assets and (3) the continued holding of
certificates acquired by a Plan or with Plan Assets pursuant to either of the
foregoing.
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Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
trust fund. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the certificates so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the trust fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to otherwise apply merely
because a person is deemed to be a Party in Interest with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
the Plan's ownership of certificates.
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Exemption, which will extend exemptive relief to certain mortgage-backed
and asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. With respect to the certificates, the
amendment will generally allow mortgage loans supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by a trust fund, to be
transferred to such trust fund within a period no longer than 90 days or three
months following the Closing Date (the "pre-funding period") instead of
requiring that all such mortgage loans be either identified or transferred on or
before the Closing Date. In general, the relief applies to the purchase, sale
and holding of certificates which otherwise qualify for the Exemption, provided
that the following general conditions are met:
(1) the ratio of the amount allocated to the pre-funding account
to the total principal amount of the certificates being offered (the
"pre-funding limit") must be less than or equal to: (a) 40% for
transactions occurring on or after January 1, 1992 but prior to May 23,
1997 and (b) 25% for transactions occurring on or after May 23, 1997;
(2) all additional mortgage loans transferred to the related
trust fund after the Closing Date (the "Subsequent Mortgage Loans") must
meet the same terms and conditions for eligibility as the original
mortgage loans used to create the trust fund, which terms and conditions
have been approved by one of the Exemption Rating Agencies;
(3) the transfer of such Subsequent Mortgage Loans to the trust
fund during the Pre-Funding Period must not result in the certificates
to be covered by the Exemptions receiving a lower credit rating from an
Exemption Rating Agency upon termination of the pre-funding period than
the rating that was obtained at the time of the initial issuance of the
certificates by the trust fund;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the mortgage loans and Subsequent Mortgage Loans in the trust
fund at the end of the pre-funding period must not be more than 100
basis points lower than the Average Interest Rate for the mortgage loans
which were transferred to the trust fund on the Closing Date;
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(5) for transactions occurring on or after May 23, 1997, either:
(a) the characteristics of the Subsequent Mortgage Loans
must be monitored by an insurer or other credit support provider which
is independent of the Depositor; or
(b) an independent accountant retained by the Depositor
must provide the Depositor with a letter (with copies provided to the
Exemption Rating Agency rating the certificates, the Underwriter and the
trustee) stating whether or not the characteristics of the Subsequent
Mortgage Loans conform to the characteristics described in this
prospectus or the prospectus supplement and/or Agreement. In preparing
such letter, the independent accountant must use the same type of
procedures as were applicable to the mortgage loans which were
transferred to the trust fund as of the Closing Date;
(6) the pre-funding period must end no later than three months or
90 days after the Closing Date or earlier in certain circumstances if
the pre-funding account falls below the minimum level specified in the
Agreement or an event of default occurs;
(7) amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding may
be invested only in investments which are permitted by the Exemption
Rating Agencies rating the certificates and must:
(a) be direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the United
States or any agency or instrumentality thereof (provided that such
obligations are backed by the full faith and credit of the United
States); or
(b) have been rated (or the obligor has been rated) in one
of the three highest generic rating categories by one of the Exemption
Rating Agencies ("ERISA Permitted Investments");
(8) the prospectus or prospectus supplement must describe the
duration of the pre-funding period;
(9) the trustee (or any agent with which the trustee contracts to
provide trust services) must be a substantial financial institution or
trust company experienced in trust activities and familiar with its
duties, responsibilities and liabilities with ERISA. The trustee, as
legal owner of the trust fund, must enforce all the rights created in
favor of certificateholders of the trust fund, including employee
benefit plans subject to ERISA.
In addition to the Exemption, a Plan fiduciary or other Plan Asset
investor should consider the availability of certain class exemptions granted by
the DOL ("Class Exemptions"), which may provide relief from certain of the
prohibited transaction provisions of ERISA and the related excise tax provisions
of the Code, including Prohibited Transaction Class Exemption ("PTCE") 83-1,
regarding transactions involving mortgage pool investment trusts; PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager";
PTCE 90-1, regarding transactions by insurance company pooled separate accounts;
PTCE 91-38, regarding investments by bank collective investment funds; PTCE
95-60, regarding transactions by insurance company general accounts; and PTCE
96-23, regarding transactions effected by an "in-house asset manager."
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions
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of Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute Plan Assets, unless (1) as otherwise provided
by the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (2) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan Assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan Assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the securities should consult with their legal counsel
with respect to the applicability of Section 401(c) of ERISA, including the
general account's ability to continue to hold the securities after the date
which is 18 months after the date the 401(c) Regulations become final.
REPRESENTATION FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY FEATURES"
OR CERTAIN SECURITIES
Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not apply to the purchase, sale or
holding of certain securities, such as notes with "substantial equity features,"
Subordinate Securities, REMIC Residual Certificates, any securities which are
not rated in one of the three highest generic rating categories by the Exemption
Rating Agencies, transfers of any such securities to a Plan, to a trustee or
other person acting on behalf of any Plan, or to any other person investing Plan
Assets to effect such acquisition will not be registered by the trustee unless
the transferee provides the Depositor, the trustee and the master servicer with
an opinion of counsel satisfactory to the Depositor, the trustee and the master
servicer, which opinion will not be at the expense of the Depositor, the trustee
or the master servicer, that the purchase of such securities by or on behalf of
such Plan is permissible under applicable law, will not constitute or result in
any non-exempt prohibited transaction under ERISA or Section 4975 of the Code
and will not subject the Depositor, the trustee or the master servicer to any
obligation in addition to those undertaken in the related Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code and will not subject the Depositor, the trustee or the master
servicer to any obligation in addition to those undertaken in the Agreement and
the following statements are correct: (1) the transferee is an insurance
company; (2) the source of funds used to purchase such securities is an
"insurance company general account" (as such term is defined in PTCE 95-60); (3)
the conditions set forth in PTCE 95-60 have been satisfied; and (4) there is no
Plan with respect to which the amount of such general account's reserves and
liabilities for contracts held by or on behalf of such Plan and all other Plans
maintained by the same employer (or any "affiliate" thereof, as defined in PTCE
95-60) or by the same
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employee organization exceed 10% of the total of all reserves and liabilities of
such general account (as determined under PTCE 95-60) as of the date of the
acquisition of such securities.
An opinion of counsel or certification will not be required with respect
to the purchase of DTC registered securities. Any purchaser of a DTC registered
security will be deemed to have represented by such purchase that either (a)
such purchaser is not a Plan and is not purchasing such securities on behalf of,
or with Plan Assets of, any Plan or (b) the purchase of any such security by or
on behalf of, or with Plan Assets of, any Plan is permissible under applicable
law, will not result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the trustee or the
master servicer to any obligation in addition to those undertaken in the related
Agreement.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "Tax- Exempt Investor") nonetheless will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" ("UBTI") within the meaning of Section 512 of the Code. All
"excess inclusion" of a REMIC allocated to a REMIC Residual Certificate and held
by a Tax-Exempt Investor will be considered UBTI and thus will be subject to
federal income tax. See "Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions" above.
CONSULTATION WITH COUNSEL
There can be no assurance that any DOL exemption will apply with respect
to any particular Plan that acquires the securities or, even if all the
conditions specified therein were satisfied, that any such exemption would apply
to transactions involving the trust fund. Prospective Plan investors should
consult with their legal counsel concerning the impact of ERISA and the Code and
the potential consequences to their specific circumstances prior to making an
investment in the securities. Neither the Depositor, the trustee, the master
servicer nor any of their respective affiliates will make any representation to
the effect that the securities satisfy all legal requirements with respect to
the investment therein by Plans generally or any particular Plan or to the
effect that the securities are an appropriate investment for Plans generally or
any particular Plan.
BEFORE PURCHASING THE SECURITIES, A FIDUCIARY OF A PLAN OR OTHER PLAN
ASSET INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND GENERAL
CONDITIONS SET FORTH IN THE EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION
401(C) OF ERISA WOULD BE SATISFIED AND (B) IN THE CASE OF A SECURITY PURCHASED
UNDER THE EXEMPTION, THE SECURITY CONSTITUTES A "CERTIFICATE" FOR PURPOSES OF
THE EXEMPTION. IN ADDITION TO MAKING ITS OWN DETERMINATION AS TO THE
AVAILABILITY OF THE EXEMPTIVE RELIEF PROVIDED IN THE EXEMPTION, ONE OF THE CLASS
EXEMPTIONS OR SECTION 401(C) OF ERISA, THE PLAN FIDUCIARY SHOULD CONSIDER ITS
GENERAL FIDUCIARY OBLIGATIONS UNDER ERISA IN DETERMINING WHETHER TO PURCHASE THE
SECURITIES ON BEHALF OF A PLAN.
LEGAL INVESTMENT
The prospectus supplement for each series of securities will specify
which classes of securities of such series, if any, will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Any class of securities that is not rated in one of the
two highest rating categories by one or more nationally recognized statistical
rating agencies or that represents an interest in a trust fund that includes
junior mortgage loans will not constitute "mortgage
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related securities" for purposes of SMMEA "Mortgage related securities" are
legal investments to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities, including depository institutions, insurance companies and pension
funds created pursuant to or existing under the laws of the United States or of
any state, the authorized investments of which are subject to state regulation.
Under SMMEA, if a state enacted legislation prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities", the securities would constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities", or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination
Council issued a revised supervisory policy statement (the "1998 Policy
Statement") applicable to all depository institutions, setting forth guidelines
for investments in "high-risk mortgage securities". The 1998 Policy Statement
has been adopted by the Federal Reserve Board, the Office of the Comptroller of
the Currency, the FDIC, the National Credit Union Administration (the "NCUA")
and the Office of Thrift Supervision (the "OTS") with an effective date of May
26, 1998. The 1998 Policy Statement rescinds a 1992 policy statement that had
required, prior to purchase, a depository institution to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and,
if so, that the proposed acquisition would reduce the institution's overall
interest rate risk. The 1998 Policy Statement eliminates former constraints on
investing in certain "high-risk" mortgage derivative products and substitutes
broader guidelines for evaluating and monitoring investment risk.
On December 1, 1998, the Office of Thrift Supervision (the "OTS") issued
Thrift Bulletin 13a, entitled, "Management of Interest Rate Risk, Investment
securities, and Derivatives Activities" ("TB 13a"), which is applicable to
thrift institutions regulated by the OTS. TB 13a has an effective date of
December 1, 1998. One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (1) conduct a
pre-purchase portfolio sensitivity analysis for any "significant transaction"
involving securities or financial derivatives and (2) conduct a pre-purchase
price sensitivity analysis of any "complex security" or financial derivative.
For the purposes of TB 13a, "complex security" includes among other things any
collateralized mortgage obligation ("CMO") or REMIC security, other than any
"plain vanilla" mortgage pass-through security (that is, securities that are
part of a single class of securities in the related pool, that are non-callable
and do not have any special features). Accordingly, the offered securities may
be viewed as "complex securities". The OTS recommends that while a thrift
institution should conduct its own in-house pre-acquisition analysis, it may
rely on an analysis conducted by an independent third-party as long as
management understands the analysis and its key assumptions. Further, TB 13a
recommends that the use of "complex securities with high price sensitivity" be
limited to transactions and strategies that lower a thrift institution's
portfolio interest rate
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risk. TB 13a warns that an investment in complex securities by thrift
institutions that do not have adequate risk measurement, monitoring and control
systems may be viewed by the OTS examiners as an unsafe and unsound practice.
Prospective investors in the securities, including in particular the
classes of securities that do not constitute "mortgage related securities" for
purposes of SMMEA should consider the matters discussed in
the following paragraph.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase securities or to purchase
securities representing more than a specified percentage of the investor's
assets. INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS IN DETERMINING WHETHER
AND TO WHAT EXTENT THE SECURITIES CONSTITUTE LEGAL INVESTMENTS FOR SUCH
INVESTORS OR ARE SUBJECT TO INVESTMENT, CAPITAL OR OTHER RESTRICTIONS, AND, IF
APPLICABLE, WHETHER SMMEA HAS BEEN OVERRIDDEN IN ANY JURISDICTION RELEVANT TO
SUCH INVESTOR.
METHODS OF DISTRIBUTION
The securities offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the securities of
a particular series may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors
through dealers; and
3. By direct placements by the Depositor with institutional
investors.
If underwriters are used in a sale of any securities (other than in
connection with an underwriting on a best efforts basis), such securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. Such underwriters may be
broker-dealers affiliated with the Depositor whose identities and relationships
to the Depositor will be as set forth in the related prospectus supplement. The
managing underwriter or underwriters with respect to the offer and sale of the
securities of a particular series will be set forth on the cover of the
prospectus supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such prospectus supplement.
In connection with the sale of the securities offered, underwriters may
receive compensation from the Depositor or from purchasers of such securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the securities may be deemed to be
underwriters in connection with such certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
offered securities by them may be deemed to be
128
<PAGE>
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the sale
of offered securities of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The prospectus supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of offered securities of such series.
The Depositor anticipates that the securities offered hereby will be
sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of offered securities, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the securities Act in connection with reoffers and sales
by them of such securities. Holders of offered securities should consult with
their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the securities will be passed
upon for the Depositor by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not
material to the offering made hereby. Any prospective purchaser that desires to
review financial information concerning the Depositor will be provided by the
Depositor on request with a copy of the most recent financial statements of the
Depositor.
RATING
It is a condition to the issuance of any class of securities that they
shall have been rated not lower than investment grade, that is, in one of the
four highest rating categories, by at least one nationally recognized
statistical rating organization.
Any such ratings on the securities address the likelihood of receipt by
the holders thereof of all collections on the underlying mortgage assets to
which such holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with such securities, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any. Such
ratings do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which such prepayments might differ
from those originally anticipated. As a result, securityholders might suffer a
lower than anticipated yield, and, in addition, holders of Strip Securities in
extreme cases might fail to recoup their initial investments.
129
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AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the securities and Exchange Commission (the
"Commission"). Such reports and other information filed by the Depositor can be
inspected and copied at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its Regional Offices located as follows: Chicago Regional
Office, 500 West Madison, 14th Floor, Chicago, Illinois 60661; New York Regional
Office, Seven World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates
and electronically through the Commission's Electronic Data Gathering, Analysis
and Retrieval System at the Commission's Web site (http:\\www.sec.gov). The
Depositor does not intend to send any financial reports to securityholders.
This prospectus does not contain all of the information set forth in the
registration statement (of which this prospectus forms a part) and exhibits
thereto which the Depositor has filed with the Commission under the securities
Act of 1933 and to which reference is hereby made.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
These are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a trust fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of securities offered hereby evidencing interest in
a trust fund. The Depositor will provide or cause to be provided without charge
to each person to whom this prospectus is delivered in connection with the
offering of one or more classes of securities offered hereby, a copy of any or
all documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of such
offered securities, other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Requests
to the Depositor should be directed in writing to its principal executive office
at 18400 Von Karman, Suite 1000, Irvine, California 92612, Attention: Secretary,
or by telephone at 949- 440-7030. The Depositor has determined that its
financial statements are not material to the offering of any securities offered
hereby.
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INDEX OF PRINCIPAL DEFINITIONS
PAGE(S) ON WHICH
TERM IS DEFINED
IN THE
TERM PROSPECTUS
---- ----------
1998 Policy Statement........................................................127
401(c) Regulations...........................................................125
Accrual Securities............................................................28
Accrued Certificate Interest..................................................37
Accrued Note Interest.........................................................37
Accrued Security Interest.....................................................36
Agreement.....................................................................27
ARM Loans.....................................................................16
Available Distribution Amount.................................................36
Average Interest Rate........................................................123
Bankruptcy Amount.............................................................52
BIF...........................................................................25
Buydown Account...............................................................34
Buydown Funds.................................................................18
Buydown Mortgage Loans........................................................18
Buydown Period................................................................18
Call Class............................................................11, 21, 51
Call Price................................................................11, 51
Cash Flow Agreement...........................................................59
CERCLA........................................................................80
Certificate...................................................................27
Certificate Account...........................................................32
Certificate Principal Balance.................................................37
Certificate Register..........................................................35
Certificateholders............................................................40
Certificates..................................................................14
Class Exemptions.............................................................124
Clean-up Call.............................................................10, 51
Closing Date..................................................................85
CMO..........................................................................127
Code......................................................................29, 82
Commission...................................................................130
Committee Report..............................................................85
Contingent Payment Regulations...............................................110
Contract.......................................................................6
Contracts.....................................................................15
Contributions Tax.............................................................97
Cooperative...................................................................15
Cooperative Loans.............................................................15
Cooperative Notes.............................................................15
Cooperative Unit..............................................................15
Credit Support................................................................28
Crime Control Act.............................................................81
Cut-off Date..................................................................29
Debt Certificates.............................................................83
Defaulted Mortgage Amount.....................................................52
Deficient Valuation...........................................................37
Deleted Mortgage Loan.........................................................31
Depositor.....................................................................20
Determination Date............................................................35
DIDMC.........................................................................82
Direct Puerto Rico Mortgage...................................................30
Distribution Date.............................................................35
131
<PAGE>
PAGE(S) ON WHICH
TERM IS DEFINED
IN THE
TERM PROSPECTUS
---- ----------
DOL........................................................................120
DOL Regulations............................................................120
DTC......................................................................9, 28
DTC Registered Securities...................................................28
Due Period..................................................................36
Endorsable Puerto Rico Mortgage.............................................30
Equity Certificates.........................................................27
ERISA..................................................................11, 120
ERISA Permitted Investments................................................124
ERISA Plans................................................................120
Event of Default............................................................48
Excluded Plan..............................................................122
Exemption..................................................................121
Exemption Rating Agencies..................................................121
FDIC....................................................................15, 25
FHA.........................................................................61
FICO score..................................................................24
Financial Guarantee Insurance...............................................59
FTC Rule....................................................................75
Garn-St Germain Act.........................................................76
Grantor Trust Certificates..................................................82
Grantor Trust Fractional Interest Certificate..............................102
Grantor Trust Fund..........................................................82
Grantor Trust Strip Certificate............................................102
High Cost Loans.............................................................73
Holder-in-Due-Course........................................................75
Home Equity Line of Credit Loans............................................16
Homeownership Act.......................................................12, 73
Indenture...................................................................27
Insurance Instruments.......................................................40
Insurance Proceeds..........................................................33
Interest Rate...............................................................16
IRS.........................................................................85
Issue Premium...............................................................92
Issuer......................................................................27
Letter of Credit............................................................53
Letter of Credit Bank.......................................................53
Liquidated Loan.............................................................37
Liquidation Proceeds........................................................33
Loan-to-Value Ratio.........................................................16
Lockout Date................................................................22
Lockout Period..............................................................21
Manufacturer's Invoice Price................................................17
Mark-to-Market Regulations..................................................95
Master Servicer.............................................................45
Mortgage Notes..............................................................14
Mortgaged Property..........................................................15
Mortgages...................................................................14
NBRC........................................................................73
NCUA.......................................................................127
New Withholding Regulations................................................100
Nonrecoverable Advance......................................................38
Note Principal Balance......................................................37
132
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PAGE(S) ON WHICH
TERM IS DEFINED
IN THE
TERM PROSPECTUS
---- ----------
Note Register.................................................................35
Noteholders...................................................................40
OID Regulations...............................................................83
Originator....................................................................14
OTS..........................................................................127
Owner Trust Agreement.........................................................27
Parties in Interest..........................................................120
Partnership Certificates......................................................83
Partnership Trust Fund........................................................83
Plan Assets..................................................................120
Plans........................................................................120
Pooling and Servicing Agreement...............................................27
Pre-Funding Limit............................................................123
Pre-Funding Period...........................................................123
Prepayment Assumption....................................................85, 105
Prepayment Period.............................................................21
Principal Balance.........................................................28, 37
Prohibited Transactions Tax...................................................97
PTCE.........................................................................124
PTCE 83-1....................................................................124
Puerto Rico Mortgage Loan.....................................................30
Purchase Price................................................................26
Record Date...................................................................35
Related Proceeds..............................................................38
Relief Act....................................................................80
REMIC.........................................................................82
REMIC Certificates............................................................82
REMIC Provisions..............................................................82
REMIC Regular Certificates....................................................83
REMIC Regulations.............................................................83
REMIC Residual Certificates...................................................83
Reserve Fund..................................................................59
Reserve Funds.................................................................53
Retained Interest.............................................................14
RICO..........................................................................81
SAIF..........................................................................25
Sales of Grantor Trust Certificates..........................................104
Scheduled Principal Balance...................................................52
Securities Act...............................................................129
Security Interest Rate........................................................28
Senior Percentage.............................................................37
Senior Securities.............................................................28
Senior/Subordinate Series.....................................................28
Servicing Default.............................................................47
Single Family Loans...........................................................15
Single Family Properties......................................................15
SMMEA........................................................................126
Special Hazard Amount.........................................................52
Special Hazard Realized Losses................................................52
Special Hazard Subordination Amount...........................................52
Stated Principal Balance......................................................27
Strip Securities..............................................................28
Stripped Interest.............................................................20
133
<PAGE>
PAGE(S) ON WHICH
TERM IS DEFINED
IN THE
TERM PROSPECTUS
---- ----------
Sub-Servicer................................................................42
Sub-Servicing Account...................................................14, 33
Sub-Servicing Agreement.....................................................42
Subordinate Securities......................................................28
Subsequent Mortgage Loans..................................................123
Substitute Mortgage Loan....................................................31
Tax Favored Plans..........................................................120
Tax-Exempt Investor........................................................126
TB 13a.....................................................................127
Tiered REMICs...............................................................84
Title V.....................................................................78
Title VIII..................................................................79
Trust Fund..................................................................14
Trust Fund Assets...........................................................14
Trustee.....................................................................51
UBTI.......................................................................126
Underwriter................................................................121
VA..........................................................................62
Window Period Loans.........................................................76
134
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the
issuance and distribution of the Securities being registered, other than
underwriting compensation, are as set forth below. All such expenses, except for
the filing fee, are estimated.
SEC Registration Fee....................... $ 278.00
Printing and Engraving Fees................ 20,000.00*
Legal Fees and Expenses.................... 150,000.00*
Accounting Fees and Expenses............... 50,000.00*
Trustee Fees and Expenses.................. 20,000.00*
Rating Agency Fees......................... 75,000.00*
Miscellaneous.............................. 15,000.00*
--------------
Total................................. $ 330,278.00
==============
---------
* Based on the offering of a single series of Securities.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8(b) of the proposed form of Underwriting
Agreement, the Underwriters are obligated under certain circumstances to
indemnify certain controlling persons of New Century Mortgage Securities (the
"Depositor") against certain liabilities, including liabilities under the
Securities Act of 1933.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another cor poration, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred by him in con nection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and
<PAGE>
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of ex penses provided by, or granted pursuant
to, Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The By-Laws of the Depositor provide, in effect, that to the
extent and under the circumstances permitted by subsections (a) and (b) of
Section 145 of the General Corporation Law of Delaware, the Depositor (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer, or
his testator or intestate is or was a director or officer of the Depositor
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Depositor as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
Pursuant to Section 145 of the General Corporation Law of
Delaware, liability insurance is maintained covering directors and principal
officers of the Depositor.
The Pooling and Servicing Agreement or Trust Agreement with
respect to each series of Certificates and the Servicing Agreement, Indenture
and Owner Trust Agreement with respect to each series of Notes will provide that
no director, officer, employee or agent of the Depositor is liable to the Trust
Fund or the Securityholders, except for such person's own willful misfeasance,
bad faith or gross negligence in the performance of duties or reckless disregard
of obligations and duties. The Pooling and Servicing Agreement or Trust
Agreement with respect to each series of Certificates and the Servicing
Agreement, Indenture and Owner Trust Agreement with respect to each series of
Notes will further provide that, with the exceptions stated above, a director,
officer, employee or agent of the Depositor is entitled to be indemnified
against any loss, liability or expense incurred in connection with legal action
relating to such Pooling and Servicing
II - 2
<PAGE>
Agreement, Trust Agreement, Servicing Agreement, Indenture or Owner Trust
Agreement and related Securities other than such expenses related to particular
Mortgage Loans.
Item 16. EXHIBITS.
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1 Form of Pooling and Servicing Agreement, for a series
consisting of Senior and Subordinate Certificates.
4.2 Form of Pooling and Servicing Agreement, for a series
consisting of a single class of Certificates.
4.3 Form of Servicing Agreement, for a series consisting of
Mortgage-Backed Notes is incorporated by reference from
Registration Statement on Form S-3.
4.4 Form of Trust Agreement, for a series consisting of
Mortgage-Backed Notes.
4.5 Form of Indenture, for a series consisting of
Mortgage-Backed Notes.
5.1 Opinion of Thacher Proffitt & Wood with respect to
legality.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain
tax matters (included as part of Exhibit 5.1).
23.1 Consent of Thacher Proffitt & Wood (included as part of
Exhibits 5.1 and 8.1).
24.1 Power of Attorney.
II - 3
<PAGE>
Item 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement: (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect
in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any
material change of such information in the Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if
the information required to be included in the post-effective
amendment is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
B. UNDERTAKING IN CONNECTION WITH INCORPORATION BY REFERENCE OF
CERTAIN FILINGS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for
II - 4
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, New Century Mortgage Securities, Inc. certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on the 16th day of April, 1999.
NEW CENTURY MORTGAGE SECURITIES,
INC.
By: /s/ Brad A. Morrice
----------------------------------------
Name: Brad A. Morrice
Title: Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Brad A. Morrice * Director and Chief Executive Officer April 16,1999
- -------------------------- (Principal Executive Officer)
Brad A. Morrice
/s/ Patrick J. Flanagan * Director and President April 16,1999
- --------------------------
Patrick J. Flanagan
/s/ Edward F. Gotschall * Treasurer (Principal April 16,1999
- -------------------------- Financial and Principal
Edward F. Gotschall Accounting Officer)
II - 6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number
- ------
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1 Form of Pooling and Servicing Agreement, for a
series consisting of Senior and Subordinate
Certificates.
4.2 Form of Trust Agreement, for a resecuritization
of Mortgage Pass-Through Certificates is
incorporated by reference from Registration
Statement on Form S-3.
4.3 Form of Servicing Agreement, for a series
consisting of Mortgage-Backed Notes is
incorporated by reference from Registration
Statement on Form S-3.
4.4 Form of Trust Agreement, for a series consisting
of Mortgage-Backed Notes.
4.5 Form of Indenture, for a series consisting of
Mortgage- Backed Notes.
5.1 Opinion of Thacher Proffitt & Wood with respect
to legality.
8.1 Opinion of Thacher Proffitt & Wood with respect
to certain tax matters (included as part of
Exhibit 5.1).
23.1 Consent of Thacher Proffitt & Wood (included as
part of Exhibits 5.1 and 8.1).
24.1 Power of Attorney.
II - 7
EXHIBIT 1.1
-----------
NEW CENTURY MORTGAGE SECURITIES, INC.
$____________ (Approximately)
Mortgage Pass-Through Certificates, Series ____-_
Class R $____________ _____%
Class A $____________ _____%
UNDERWRITING AGREEMENT
----------------------
----------------, ----
[UNDERWRITER]
- -----------------------------
- -----------------------------
- -----------------------------
Ladies and Gentlemen:
New Century Mortgage Securities, Inc., a Delaware corporation (the
"Company"), proposes to sell to you (also referred to herein as the
"Underwriter") Mortgage Pass-Through Certificates, Series ____-__, Class A and
Class R Certificates other than a de minimis portion thereof (collectively, the
"Certificates"), having the aggregate principal amounts and Pass-Through Rates
set forth above. The Certificates, together with the Class M and Class B
Certificates of the same series, will evidence the entire beneficial interest in
the Trust Fund (as defined in the Pooling and Servicing Agreement referred to
below) consisting primarily of a pool (the "Pool") of conventional, fixed-rate,
one- to four-family residential mortgage loans (the "Mortgage Loans") as
described in the Prospectus Supplement (as hereinafter defined) to be sold by
the Company. A de minimis portion of the Class R Certificates will not be sold
hereunder and will be held by the Trustee.
The Certificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") to be dated as of
__________________, ____ (the "Cut-off Date") among the Company, as seller,
[Name of Master Servicer], as master servicer (the "Master Servicer"), and
___________________________________________, as trustee (the "Trustee"). The
Certificates are described more fully in the Basic Prospectus and the Prospectus
Supplement (each as hereinafter defined) which the Company has furnished to you.
<PAGE>
-2-
1. Representations, Warranties and Covenants.
-----------------------------------------
1.1 The Company represents and warrants to, and agrees with
you that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (No.
33-_____) on Form S-3 for the registration under the Securities Act of
1933, as amended (the "Act"), of Mortgage Pass-Through Certificates
(issuable in series), including the Certificates, which registration
statement has become effective, and a copy of which, as amended to the
date hereof, has heretofore been delivered to you. The Company proposes
to file with the Commission pursuant to Rule 424(b) under the rules and
regulations of the Commission under the Act (the "1933 Act
Regulations") a supplement dated __________, ____ (the "Prospectus
Supplement"), to the prospectus dated __________, ____ (the "Basic
Prospectus"), relating to the Certificates and the method of
distribution thereof. Such registration statement (No. 33-_____)
including exhibits thereto and any information incorporated therein by
reference, as amended at the date hereof, is hereinafter called the
"Registration Statement"; and the Basic Prospectus and the Prospectus
Supplement and any information incorporated therein by reference,
together with any amendment thereof or supplement thereto authorized by
the Company on or prior to the Closing Date for use in connection with
the offering of the Certificates, are hereinafter called the
"Prospectus". Any preliminary form of the Prospectus Supplement which
has heretofore been filed pursuant to Rule 424, or prior to the
effective date of the Registration Statement pursuant to Rule 402(a),
or 424(a) is hereinafter called a "Preliminary Prospectus Supplement."
(b) The Registration Statement has become effective,
and the Registration Statement as of the effective date (the "Effective
Date"), and the Prospectus, as of the date of the Prospectus
Supplement, complied in all material respects with the applicable
requirements of the Act and the 1933 Act Regulations; and the
Registration Statement, as of the Effective Date, did not contain any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as of the date of
the Prospectus Supplement, did not, and as of the Closing Date will
not, contain an untrue statement of a material fact and did not and
will not omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto relating to the information
identified by underlining or other highlighting as shown in Exhibit E
(the "Excluded Information"); and provided, further, that the Company
makes no representations or warranties as to either (i) any information
in any Computational Materials or ABS Term Sheets (each as hereinafter
defined) required to be provided by the Underwriter to the Company
pursuant to Section 4.2, except to the extent of any information set
forth therein that constitutes Pool Information (as defined below), or
(ii)
<PAGE>
-3-
as to any information contained in or omitted from the portions of the
Prospectus identified by underlining or other highlighting as shown in
Exhibit F (the "Underwriter Information"). As used herein, "Pool
Information" means information with respect to the characteristics of
the Mortgage Loans and administrative and servicing fees, as provided
by or on behalf of the Company to the Underwriter in final form and set
forth in the Prospectus Supplement. The Company acknowledges that,
except for any Computational Materials, the Underwriter Information
constitutes the only information furnished in writing by you or on your
behalf for use in connection with the preparation of the Registration
Statement, any preliminary prospectus or the Prospectus, and you
confirm that the Underwriter Information is correct.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the requisite corporate power to own its properties
and to conduct its business as presently conducted by it.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) As of the Closing Date (as defined herein) the
Certificates will conform in all material respects to the description
thereof contained in the Prospectus and the representations and
warranties of the Company in the Pooling and Servicing Agreement will
be true and correct in all material respects.
1.2 The Underwriter represents and warrants to and agrees with
the Company that:
(a) No purpose of the Underwriter relating to the
purchase of any of the Class R Certificates by the Underwriter is or
will be to enable the Company to impede the assessment or collection of
any tax.
(b) The Underwriter has no present knowledge or
expectation that it will be unable to pay any United States taxes owed
by it so long as any of the Certificates remain outstanding.
(c) The Underwriter has no present knowledge or
expectation that it will become insolvent or subject to a bankruptcy
proceeding for so long as any of the Certificates remain outstanding.
(d) No purpose of the Underwriter relating to any
sale of any of the Class R Certificates by the Underwriter will be to
enable it to impede the assessment or collection of tax. In this
regard, the Underwriter hereby represents to and for the benefit of the
Company that the Underwriter intends to pay taxes associated with
holding the Class
<PAGE>
-4-
R Certificates, as they become due, fully understanding that it may
incur tax liabilities in excess of any cash flows generated by the
Class R Certificates.
(e) The Underwriter will, in connection with any
transfer it makes of any of the Class R Certificates, obtain from its
transferee the affidavit required by Section 5.02(g)(i)(B)(I) of the
Pooling and Servicing Agreement, will not consummate any such transfer
if it knows or believes that any representation contained in such
affidavit is false and will provide the Trustee with the Certificate
required by Section 5.02(g)(i)(B)(II) of the Pooling and Servicing
Agreement.
(f) The Underwriter hereby certifies that (i) with
respect to any classes of Certificates issued in authorized
denominations or Percentage Interests of less than $25,000 or 20%, as
the case may be, the fair market value of each such Certificate sold to
any person on the date of initial sale thereof by the Underwriter will
not be less than $100,000, and (ii) with respect to each class of
Certificates to be maintained on the book-entry records of The
Depository Trust Company ("DTC"), the interest in each such class of
Certificates sold to any person on the date of initial sale thereof by
the Underwriter will not be less than an initial Certificate Principal
Balance of $25,000.
(g) The Underwriter will use its best reasonable
efforts to cause Trepp & Co. to issue a commitment letter, prior to the
Closing Date, to DTC stating that Trepp & Co. will value the DTC
Registered Certificates (hereinafter defined) on an ongoing basis
subsequent to the Closing Date.
(h) The Underwriter will have funds available at
__________________ _______________, in the Underwriter's account at
such bank at the time all documents are executed and the closing of the
sale of the Certificates is completed, except for the transfer of funds
and the delivery of the Certificates. Such funds will be available for
immediate transfer into the account of the Company maintained at such
bank.
(i) As of the date hereof and as of the Closing Date,
the Underwriter has complied with all of its obligations hereunder
including Section 4.2, and, with respect to all Computational Materials
and ABS Term Sheets provided by the Underwriter to the Company pursuant
to Section 4.2, if any, such Computational Materials and ABS Term
Sheets are accurate in all material respects when read in conjunction
with the Prospectus Supplement (taking into account the assumptions
explicitly set forth in the Computational Materials, except to the
extent of any errors therein that are caused by errors in the Pool
Information). The Computational Materials and ABS Term Sheets provided
by the Underwriter to the Company constitute a complete set of all
Computational Materials and ABS Term Sheets that are required to be
filed with the Commission.
1.3 The Underwriter covenants and agrees to pay directly, or
reimburse the Company upon demand for (i) any and all taxes (including penalties
and interest) owed or asserted to be owed by the Company as a result of a claim
by the Internal Revenue Service that the transfer
<PAGE>
-5-
of any of the Class R Certificates to the Underwriter hereunder or any transfer
thereof by the Underwriter may be disregarded for federal tax purposes and (ii)
any and all losses, claims, damages and liabilities, including attorney's fees
and expenses, arising out of any failure of the Underwriter to make payment or
reimbursement in connection with any such assertion as required in (i) above. In
addition, the Underwriter acknowledges that on the Closing Date immediately
after the transactions described herein it will be the owner of the Class R
Certificates for federal tax purposes, and the Underwriter covenants that it
will not assert in any proceeding that the transfer of the Class R Certificates
from the Company to the Underwriter should be disregarded for any purpose.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the Class R Certificates,
which shall be transferred by the Company to the Trustee) at a price equal to
__________% of the aggregate principal balance of the Certificates as of the
Closing Date. There will be added to the purchase price of the Certificates an
amount equal to interest accrued thereon from the Cut-off Date to but not
including the Closing Date. The purchase price for the Certificates was agreed
to by the Company in reliance upon the transfer from the Company to the
Underwriter of the tax liabilities associated with the ownership of the Class R
Certificates.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Certificates
shall be made at the office of Thacher Proffitt & Wood at 10:00 a.m., New York
City time, on ______________, ____ or such later date as you shall designate,
which date and time may be postponed by agreement between you and the Company
(such date and time of delivery and payment for the Certificates being herein
called the "Closing Date"). Delivery of the Certificates (except for the Class R
Certificates (the "Definitive Certificates")) shall be made to you through the
Depository Trust Company ("DTC") (such Certificates, the "DTC Registered
Certificates"), and delivery of the Definitive Certificates shall be made in
registered, certified form, in each case against payment by you of the purchase
price thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspec tion, checking and packaging by you
in New York, New York not later than 1:00 p.m. on the business day prior to the
Closing Date.
4. Offering by Underwriter.
-----------------------
4.1 It is understood that you propose to offer the
Certificates for sale to the public as set forth in the Prospectus and you agree
that all such offers and sales by you shall be made in compliance with all
applicable laws and regulations.
4.2 It is understood that you may prepare and provide to
prospective investors certain Computational Materials (as defined below) in
connection with your offering of the Certificates, subject to the following
conditions:
<PAGE>
-6-
(a) The Underwriter shall comply with all applicable
laws and regulations in connection with the use of Computational
Materials, including the No-Action Letter of May 20, 1994 issued by the
Commission to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody
& Co. Incorporated and Kidder Structured Asset Corporation, as made
applicable to other issuers and underwriters by the Commission in
response to the request of the Public Securities Association dated May
24, 1994 (collectively, the "Kidder/PSA Letter") as well as the PSA
Letter referred to below. The Underwriter shall comply with all
applicable laws and regulations in connection with the use of ABS Term
Sheets, including the No-Action Letter of February 17, 1995 issued by
the Commission to the Public Securities Association (the "PSA Letter"
and, together with the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" as
used herein shall have the meaning given such term in the No-Action
Letters, but shall include only those Computational Materials that have
been prepared or delivered to prospective investors by or at the
direction of the Underwriter. For purposes hereof, "ABS Term Sheets"
and "Collateral Term Sheets" as used herein shall have the meanings
given such terms in the PSA Letter but shall include only those ABS
Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the
Underwriter.
(c) All Computational Materials and ABS Term Sheets
provided to prospective investors that are required to be filed
pursuant to the No-Action Letters shall bear a legend on each page
including the following statement:
"THE INFORMATION HEREIN HAS BEEN PROVIDED SOLELY BY
[Underwriter]. NEITHER THE ISSUER OF THE
CERTIFICATES NOR ANY OF ITS AFFILIATES MAKES ANY
REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF
THE INFORMATION HEREIN. THE INFORMATION HEREIN IS
PRELIMINARY, AND WILL BE SUPERSEDED BY THE
APPLICABLE PROSPECTUS SUPPLEMENT AND BY ANY OTHER
INFORMATION SUBSEQUENTLY FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
In the case of Collateral Term Sheets, such legend shall also include
the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED
BY THE DESCRIPTION OF THE MORTGAGE POOL CONTAINED IN
THE PROSPECTUS SUPPLEMENT RELATING TO THE
CERTIFICATES AND [Except with respect to the initial
Collateral Term Sheet prepared by the Underwriter]
<PAGE>
-7-
SUPERSEDES ALL INFORMATION CONTAINED IN ANY
COLLATERAL TERM SHEETS RELATING TO THE MORTGAGE POOL
PREVIOUSLY PROVIDED BY [the Underwriter]."
The Company shall have the right to require additional specific legends
or notations to appear on any Computational Materials or ABS Term
Sheets, the right to require changes regarding the use of terminology
and the right to determine the types of information appearing therein.
Notwithstanding the foregoing, this subsection (c) will be satisfied if
all such Computational Materials and ABS Term Sheets bear a legend in
the form set forth in Exhibit I hereto.
(d) The Underwriter shall provide the Company with
representative forms of all Computational Materials and ABS Term Sheets
prior to their first use, to the extent such forms have not previously
been approved by the Company for use by the Underwriter. The
Underwriter shall provide to the Company, for filing on Form 8-K as
provided in Section 5.9, copies (in such format as required by the
Company) of all Computational Materials that are required to be filed
with the Commission pursuant to the No-Action Letters. The Underwriter
may provide copies of the foregoing in a consolidated or aggregated
form including all information required to be filed. All Computational
Materials and ABS Term Sheets described in this subsection (d) must be
provided to the Company not later than 10:00 a.m. New York time one
business day before filing thereof is required pursuant to the terms of
this Agreement. The Underwriter agrees that it will not provide to any
investor or prospective investor in the Certificates any Computational
Materials or ABS Term Sheets on or after the day on which Computational
Materials and ABS Term Sheets are required to be provided to the
Company pursuant to this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets previously submitted to the
Company in accordance with this Section 4.2(d) for filing pursuant to
Section 5.9), unless such Computational Materials or ABS Term Sheets
are preceded or accompanied by the delivery of a Prospectus to such
investor or prospective investor.
(e) All information included in the Computational
Materials shall be generated based on substantially the same
methodology and assumptions that are used to generate the information
in the Prospectus Supplement as set forth therein; provided that the
Computational Materials and ABS Term Sheets or ABS Term Sheets, as the
case may be, may include information based on alternative assumptions
if specified therein. If any Computational Materials or ABS Term Sheets
that are required to be filed were based on assumptions with respect to
the Pool that differ from the final Pool Information in any material
respect or on Certificate structuring terms that were revised prior to
the printing of the Prospectus, the Underwriter shall prepare revised
Computational Materials or ABS Term Sheets, as the case may be, based
on the final Pool Information and structuring assumptions, circulate
such revised Computational Materials and ABS Term Sheets to all
recipients of the preliminary versions thereof that indicated orally to
the Underwriter they would purchase all or any portion of the
Certificates and include such revised
<PAGE>
-8-
Computational Materials and ABS Term Sheets (marked, "as revised") in
the materials delivered to the Company pursuant to subsection (d)
above.
(f) The Company shall not be obligated to file any
Computational Materials that have been determined to contain any
material error or omission. In the event that any Computational
Materials or ABS Terms Sheets are determined, within the period which
the Prospectus relating to the Certificates is required to be delivered
under the Act, to contain a material error or omission, the Underwriter
shall prepare a corrected version of such Computational Materials or
ABS Term Sheets, shall circulate such corrected Computational Materials
to all recipients of the prior versions thereof that indicated orally
to the Underwriter they would purchase all or any portion of the
Certificates and shall deliver copies of such corrected Computational
Materials and ABS Term Sheets (marked, "as corrected") to the Company
for filing with the Commission in a subsequent Form 8-K submission
(subject to the Company's obtaining an accountant's comfort letter in
respect of such corrected Computational Materials, which shall be at
the expense of the Underwriter), provided that if any such letter is
required to be revised solely because of a change in the Pool
Information, fifty percent of any additional expenses for such letter
resulting from the change in Pool Information shall be paid by each of
the Underwriter and the Company.
(g) If the Underwriter does not provide any
Computational Materials or ABS Term Sheets to the Company pursuant to
subsection (d) above, the Underwriter shall be deemed to have
represented, as of the Closing Date, that it did not provide any
prospective investors with any information in written or electronic
form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the
No-Action Letters, and the Underwriter shall provide the Company with a
certification to that effect on the Closing Date.
(h) In the event of any delay in the delivery by the
Underwriter to the Company of all Computational Materials and ABS Term
Sheets required to be delivered in accordance with subsection (d)
above, or in the delivery of the accountant's comfort letter in respect
thereof pursuant to Section 5.9, the Company shall have the right to
delay the release of the Prospectus to investors or to the Underwriter,
to delay the Closing Date and to take other appropriate actions in each
case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5.9 to file the Computational Materials
and ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it has in place,
and covenants that it shall maintain internal controls and procedures
which it reasonably believes to be sufficient to ensure full compliance
with all applicable legal requirements of the No-Action Letters with
respect to the generation and use of Computational Materials and ABS
Term Sheets in connection with the offering of the Certificates.
<PAGE>
-9-
4.3 You further agree that on or prior to the sixth day after
the Closing Date, you shall provide the Company with a certificate,
substantially in the form of Exhibit G attached hereto, setting forth (i) in the
case of each class of Certificates, (a) if less than 10% of the aggregate
principal balance of such class of Certificates has been sold to the public as
of such date, the value calculated pursuant to clause (b)(iii) of Exhibit G
hereto, or, (b) if 10% or more of such class of Certificates has been sold to
the public as of such date but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates sold, or (c)
the first single price at which at least 10% of the aggregate principal balance
of such class of Certificates was sold to the public, (ii) the prepayment
assumption used in pricing each class of Certificates, and (iii) such other
information as to matters of fact as the Company may reasonably request to
enable it to comply with its reporting requirements with respect to each class
of Certificates to the extent such information can in the good faith judgment of
the Underwriter be determined by it.
5. AGREEMENTS. The Company agrees with you that:
5.1 Before amending or supplementing the Registration
Statement or the Prospectus with respect to the Certificates, the Company will
furnish you with a copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424(b) under the Act
by means reasonably calculated to result in filing with the Commission pursuant
to said rule.
5.3 If, during the period after the first date of the public
offering of the Certificates in which a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of which
it is necessary to amend or supplement the Prospectus, as then amended or
supplemented, in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it shall be necessary to amend or supplement the Prospectus to comply with
the Act or the 1933 Act Regulations, the Company promptly will prepare and
furnish, at its own expense, to you, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will comply
with law.
5.4 The Company will furnish to you, without charge, a copy of
the Registration Statement (including exhibits thereto) and, so long as delivery
of a prospectus by an underwriter or dealer may be required by the Act, as many
copies of the Prospectus, any documents incorporated by reference therein and
any amendments and supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the Certificates shall be
outstanding, or until such time as you shall cease to maintain a secondary
market in the Certificates, whichever
<PAGE>
-10-
first occurs, to deliver to you the annual statement as to compliance delivered
to the Trustee pursuant to Section 3.18 of the Pooling and Servicing Agreement
and the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 3.19 of the Pooling and Servicing Agreement,
as soon as such statements are furnished to the Company.
5.6 The Company will endeavor to arrange for the qualification
of the Certificates for sale under the laws of such jurisdictions as you may
reasonably designate and will maintain such qualification in effect so long as
required for the initial distribution of the Certificates; provided, however,
that the Company shall not be required to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to general or unlimited service of process in any jurisdiction where
it is not now so subject.
5.7 If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid all expenses incident to
the performance of the obligations of the Company under this Agreement, and will
reimburse you for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by you in connection with
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you have
reasonably requested pursuant to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Certificates, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be responsible for paying all
costs and expenses incurred by you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the Certificates.
5.8 If, during the period after the Closing Date in which a
prospectus relating to the Certificates is required to be delivered under the
Act, the Company receives notice that a stop order suspending the effectiveness
of the Registration Statement or preventing the offer and sale of the
Certificates is in effect, the Company will advise you of the issuance of such
stop order.
5.9 The Company shall file the Computational Materials and ABS
Term Sheets (if any) provided to it by the Underwriter under Section 4.2(d) with
the Commission pursuant to a Current Report on Form 8-K by 10:00 a.m. on the
morning the Prospectus is delivered to the Underwriter or, the case of any
Collateral Term Sheet required to be filed prior to such date, by 10:00 a.m. on
the second business day following the first day on which such Collateral Term
Sheet has been sent to a prospective investor; provided, however, that prior to
such filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriter must comply with its obligations pursuant to Section
4.2 and the Company must receive a letter from ___________________________,
certified public accountants, satisfactory in form and substance to the Company
and its counsel, to the effect that such accountants have performed certain
specified procedures, all of which have been agreed to by the Company, as a
result of which they determined that all information that is included in the
Computational Materials (if any) provided
<PAGE>
-11-
by the Underwriter to the Company for filing on Form 8-K, as provided in Section
4.2 and this Section 5.9, is accurate without exception. The foregoing letter
shall be at the sole expense of the Underwriter. The Company shall file any
corrected Computational Materials described in Section 4.2(f) as soon as
practicable following receipt thereof. The Company also will file with the
Commission within fifteen days of the issuance of the Certificates a Current
Report on Form 8-K (for purposes of filing the Pooling and Servicing Agreement).
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. The Underwriter's
obligation to purchase the Certificates shall be subject to the following
conditions:
6.1 No stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for that purpose
shall be pending or, to the knowledge of the Company, threatened by the
Commission; and the Prospectus Supplement shall have been filed or transmitted
for filing, by means reasonably calculated to result in a filing with the
Commission pursuant to Rule 424(b) under the Act.
6.2 Since _________ 1, ____ there shall have been no material
adverse change (not in the ordinary course of business) in the condition of the
Company.
6.3 The Company shall have delivered to you a certificate,
dated the Closing Date, of the President, a Senior Vice President or a Vice
President of the Company to the effect that the signer of such certificate has
examined this Agreement, the Prospectus, the Pooling and Servicing Agreement and
various other closing documents, and that, to the best of his or her knowledge
after reasonable investigation:
(a) the representations and warranties of the Company
in this Agreement and in the Pooling and Servicing Agreement are true
and correct in all material respects; and
(b) the Company has, in all material respects,
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied hereunder at or prior to the
Closing Date.
6.4 You shall have received the opinions of Thacher Proffitt &
Wood, counsel for the Company and the Master Servicer, dated the Closing Date
and substantially to the effect set forth in Exhibit A-1 and Exhibit A-2, and
the opinion of [counsel to Master Servicer], dated the Closing Date and
substantially to the effect set forth in Exhibit B.
6.5 You shall have received from ________________________,
counsel for the Underwriter, an opinion dated the Closing Date in form and
substance satisfactory to the Underwriter.
6.6 The Underwriter shall have received from
________________________, certified public accountants, a letter dated the date
hereof and satisfactory in form and substance
<PAGE>
-12-
to the Underwriter and the Underwriter's counsel, to the effect that they have
performed certain specified procedures, all of which have been agreed to by the
Underwriter, as a result of which they determined that certain information of an
accounting, financial or statistical nature set forth in the Prospectus
Supplement under the captions "Description of the Mortgage Pool", "Pooling and
Servicing Agreement", "Description of the Certificates" and "Certain Yield and
Prepayment Considerations" agrees with the records of the Company excluding any
questions of legal interpretation.
6.7 The Certificates shall have been rated "AAA" by [Standard
& Poor's Ratings Services] and [Fitch Investor's Service, L.P.]
6.8 You shall have received the opinion of [Trustee's
Counsel], dated the Closing Date, substantially to the effect set forth in
Exhibit C.
6.9 You shall have received from Thacher Proffitt & Wood,
counsel to the Company, reliance letters with respect to any opinions delivered
to Standard & Poor's Ratings Services and Fitch Investor Services, L.P.
The Company will furnish you with conformed copies of the above opinions,
certificates, letters and documents as you reasonably request.
7. INDEMNIFICATION AND CONTRIBUTION.
7.1 The Company agrees to indemnify and hold harmless you and
each person, if any, who controls you within the meaning of either Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Certificates as originally
filed or in any amendment thereof or other filing incorporated by reference
therein, or in the Prospectus or incorporated by reference therein (if used
within the period set forth in Section 5.3 hereof and as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
any information with respect to which the Underwriter has agreed to indemnify
the Company pursuant to Section 7.2; provided, that neither the Company, or you
will be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein relating to the
Excluded Information.
7.2 You agree to indemnify and hold harmless the Company, its
directors or officers and any person controlling the Company to the same extent
as the indemnity set forth in clause 7.1 above from the Company to you, but only
with respect to (i) the Underwriter
<PAGE>
-13-
Information and (ii) the Computational Materials and ABS Term Sheets, except to
the extent of any errors in the Computational Materials or ABS Term Sheets that
are caused by errors in the Pool Information. In addition, you agree to
indemnify and hold harmless the Company its directors or officers and any person
controlling the Company against any and all losses, claims, damages, liabilities
and expenses (including, without limitation, reasonable attorneys' fees) caused
by, resulting from, relating to, or based upon any legend regarding original
issue discount on any Certificate resulting from incorrect information provided
by the Underwriter in the certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either clause 7.1 or 7.2, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by you, in the case of parties
indemnified pursuant to clause 7.1 and by the Company, in the case of parties
indemnified pursuant to clause 7.2. The indemnifying party may, at its option,
at any time upon written notice to the indemnified party, assume the defense of
any proceeding and may designate counsel reasonably satisfactory to the
indemnified party in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in connection
with such representation. Unless it shall assume the defense of any proceeding
the indemnifying party shall not be liable for any settlement of any proceeding,
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense of
any proceeding, it shall be entitled to settle such proceeding with the consent
of the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
7.4 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clause 7.1 or 7.2 hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
<PAGE>
-14-
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Underwriter on the other from
the offering of the Certificates but also the relative fault of the Company on
the one hand and of the Underwriter, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Underwriter on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
7.5 The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the considerations referred to in clause 7.4, above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in this Section 7 shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim except where the indemnified party is
required to bear such expenses pursuant to clause 7.4; which expenses the
indemnifying party shall pay as and when incurred, at the request of the
indemnified party, to the extent that the indemnifying party believes that it
will be ultimately obligated to pay such expenses. In the event that any
expenses so paid by the indemnifying party are subsequently determined to not be
required to be borne by the indemnifying party hereunder, the party which
received such payment shall promptly refund the amount so paid to the party
which made such payment. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7.6 The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the
Underwriter or on behalf of the Underwriter or any person controlling the
Underwriter or by or on behalf of the Company and its respective directors or
officers or any person controlling the Company and (iii) acceptance of and
payment for any of the Certificates.
8. TERMINATION. This Agreement shall be subject to termination by
notice given to the Company, if the sale of the Certificates provided for herein
is not consummated because of any failure or refusal on the part of the Company
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform their respective
obligations under this Agreement. If you terminate this Agreement in accordance
with this Section 8, the Company will reimburse you for all reasonable
out-of-pocket expenses
<PAGE>
-15-
(including reasonable fees and disbursements of counsel) that shall have been
reasonably incurred by the Underwriter in connection with the proposed purchase
and sale of the Certificates.
9. CERTAIN REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or the officers of the Company, and you set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by you or on your
behalf or made by or on behalf of the Company or any of its officers, directors
or controlling persons, and will survive delivery of and payment for the
Certificates.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter will be mailed,
delivered or telegraphed and confirmed to you at
________________________________________________________________________,
Attention: ____________________________ or if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at New Century Mortgage
Securities, Inc., 18400 Von Karman, Suite 1000, Irvine, California 92612.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
<PAGE>
-16-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
NEW CENTURY MORTGAGE
SECURITIES, INC.
By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
________________________________________
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT A-1
[THACHER PROFFITT & WOOD LETTERHEAD]
-------------- ---, ----
New Century Mortgage Securities, Inc. [Underwriter]
18400 Von Karman, Suite 1000 __________________________________
Irvine, California 92612 __________________________________
[Name of Master Servicer] [Trustee]
[Address of Master Servicer] ___________________________________
___________________________________
Opinion: Underwriters Agreement
New Century Mortgage Securities, Inc.
Mortgage Pass-Through Certificates, Series
------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to New Century Mortgage Securities, Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series ____- ____ (the "Certificates"), pursuant to the Pooling and Servicing
Agreement, dated as of _______________ 1, ____ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and ___________________, as
trustee (the "Trustee"). The Certificates consist of ____________ classes
designated as Class A and Class R (collectively, the "Senior Certificates") and
____________ classes of subordinated certificates designated as Class M and
Class B. Only the Senior Certificates and the Class M Certificates
(collectively, the "Offered Certificates") are being offered under the
Prospectus, ________, and the Prospectus Supplement, the Prospectus Supplement
together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant
<PAGE>
New Century Mortgage Securities, Inc.
Series ______________
_______________ ___, ____ 2.
to the Custodial Agreement, dated as of _______________ 1, ____, among the
Company, the Master Servicer, the Custodian and the Trustee (the "Custodial
Agreement"). ____________________________________ (the "Purchaser") acquired the
Mortgage Loans through its mortgage loan purchase program from various
seller/servicers. The Purchaser transferred the Mortgage Loans to the Company
pursuant to the Assignment and Assumption Agreement, dated _________ __, ____
(the "Assignment and Assumption Agreement"), in exchange for immediately
available funds, and the Class M and Class B Certificates. The Company will sell
the Class A and the Class R Certificates other than a de minimis portion thereof
(the "Underwritten Certificates") to _______________________ (the
"Underwriter"), pursuant to the Underwriting Agreement, dated _____________ __,
____, between the Company and the Underwriter (the "Underwriting Agreement"; the
Pooling and Servicing Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement, collectively, the
"Agreements"). Capitalized terms not defined herein have the meanings ascribed
to them in the Agreements. This opinion letter is rendered pursuant to Section
6.4 of the Underwriting Agreement.
In rendering this opinion letter, we have examined the documents
described above and such other documents as we have deemed necessary including,
where we have deemed appropriate, representations or certifications of officers
of parties thereto or public officials. In rendering this opinion letter, except
for the matters that are specifically addressed in the opinions expressed below,
we have assumed (i) the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies, (ii) the necessary entity formation and continuing existence in the
jurisdiction of formation, and the necessary licensing and qualification in all
jurisdictions, of all parties to all documents, (iii) the necessary
authorization, execution, delivery and enforceability of all documents, and the
necessary entity power with respect thereto and (iv) that there is not any other
agreement that modifies or supplements the agreements expressed in the documents
to which this opinion letter relates and that renders any of the opinions
expressed below inconsistent with such documents as so modified or supplemented.
In rendering this opinion letter, we have made no inquiry, have conducted no
investigation and assume no responsibility with respect to (a) the accuracy of
and compliance by the parties thereto with the representations, warranties and
covenants contained in any document or (b) the conformity of the underlying
assets and related documents to the requirements of the agreements to which this
opinion letter relates.
Our opinions set forth below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality, reasonableness, good faith and fair
dealings and the possible unavailability of specific performance and injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial and other decisions
upon the availability and enforceability of certain covenants, remedies and
other provisions, including the remedies of specific performance and self-help
and provisions imposing penalties and forfeitures and waiving objections to
venue and forum, (iii) bankruptcy, insolvency, receivership, reorganization,
liquidation, voidable preference, fraudulent conveyance and transfer, moratorium
and other similar laws affecting the rights of creditors or secured parties and
(iv) public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of any agreement which purport or are construed to provide
indemnification with respect to securities
<PAGE>
New Century Mortgage Securities, Inc.
Series ______________
_______________ ___, ____ 3.
law violations. Wherever we indicate that our opinion with respect to the
existence or absence of facts is based on our knowledge, our opinion is based
solely on the current actual knowledge of the attorneys in this firm who are
involved in the representation of parties to the transactions described herein.
In that regard we have conducted no special or independent investigation of
factual matters in connection with this opinion letter.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the federal laws of the United States, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
We do not express any opinion with respect to the securities laws of any
jurisdiction or any other matter not specifically addressed in the opinions
expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. The Registration Statement has become effective under the 1933
Act, and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and not withdrawn, and no proceedings for that purpose have
been instituted or threatened under Section 8(d) of the 1933
Act.
2. The Registration Statement as of the date of the Prospectus
Supplement and the date hereof, and the Prospectus as of the
date of the Prospectus Supplement and the date hereof, other
than any financial or statistical information, Computational
Materials and ABS Term Sheets contained or incorporated by
reference therein, as to which we express no opinion herein,
complied as to form in all material respects with the
requirements of the Act and the applicable rules and
regulations thereunder.
3. To our knowledge, there are no material contracts, indentures
or other documents of a character required to be described or
referred to in either the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement, other than Computational Materials and ABS Term
Sheets as to which we express no opinion herein, and those
described or referred to therein or filed or incorporated by
reference as exhibits thereto.
4. The statements made in the Prospectus under the heading
"Description of the Securities," insofar as such statements
purport to summarize certain provisions of the Offered
Certificates and the Pooling and Servicing Agreement, provide
a fair summary of such provisions. The statements made in the
Basic Prospectus and the Prospectus Supplement, as the case
may be, under the headings "Federal Income Tax Consequences,"
"Certain Legal Aspects of Mortgage Loans-Applicability of
Usury Laws" and "-Alternative Mortgage Instruments" and "ERISA
Considerations," to the extent that they constitute matters of
State of New York or federal law or legal conclusions with
respect thereto, while not purporting to discuss all possible
consequences of investment in the Offered Certificates, are
correct in all material respects with respect to those
consequences or matters that are discussed therein.
<PAGE>
New Century Mortgage Securities, Inc.
Series ______________
_______________ ___, ____ 4.
5. The Offered Certificates, assuming the execution,
authentication and delivery thereof in accordance with the
Pooling and Servicing Agreement and the delivery thereof and
payment therefor in accordance with the Underwriting
Agreement, are validly issued and outstanding and are entitled
to the benefits of the Pooling and Servicing Agreement.
6. The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended.
The Trust Fund created by the Pooling and Servicing Agreement
is not an "investment company" or "controlled by" an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
7. The Class A Certificates will be "mortgage related securities"
as defined in Section 3(a)(41) of the 1934 Act, as amended, so
long as such class is rated in one of the two highest rating
categories by at least one "nationally recognized statistical
rating organization" as that term is used in that Section.
8. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, REMIC I
and REMIC II will each qualify as a real estate mortgage
investment conduit ("REMIC") within the meaning of Sections
860A through 860G (the "REMIC Provisions") of the Internal
Revenue Code of 1986, the Class R-I Certificates will
constitute the sole class of "residual interests" in REMIC I,
each class of Offered Certificates will represent ownership of
"regular interests" in REMIC II and will generally be treated
as debt instruments of REMIC II and the Class R-II
Certificates will constitute the sole class of "residual
certificates" in REMIC II, within the meaning of the REMIC
Provisions in effect on the date hereof.
9. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for City and State of New York income and
corporation franchise tax purposes, REMIC I and REMIC II will
each be classified as a REMIC and not as a corporation,
partnership or trust, in conformity with the federal income
tax treatment of the Trust Fund. Accordingly, REMIC I and
REMIC II will be exempt from all City and State of New York
taxation imposed on its income, franchise or capital stock,
and its assets will not be included in the calculation of any
franchise tax liability.
<PAGE>
New Century Mortgage Securities, Inc.
Series ______________
_______________ ___, ____ 5.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon. Copies of this
opinion letter may not be made available, and this opinion letter may not be
quoted or referred to in any other document made available, to any other person
or entity except to (i) any applicable rating agency, credit enhancer or
governmental authority, (ii) any accountant or attorney for any person or entity
entitled hereunder to rely hereon or to whom or which this opinion letter may be
made available as provided herein or (iii) as otherwise required by law.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT A-2
[THACHER PROFFITT & WOOD LETTERHEAD]
-------------- ---, ----
Supplemental Letter:
New Century Mortgage Securities, Inc.
Mortgage Pass-Through Certificates, Series ____-_____
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to New Century Mortgage Securities, Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series ____- ____ (the "Certificates"), pursuant to the Pooling and Servicing
Agreement, dated as of _______________ 1, ____ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and ___________________, as
trustee (the "Trustee"). The Certificates consist of ____________ classes
designated as Class A and Class R (collectively, the "Senior Certificates") and
____________ classes of subordinated certificates designated as Class M and
Class B. Only the Senior Certificates and the Class M Certificates
(collectively, the "Offered Certificates") are being offered under the
Prospectus, ________, and the Prospectus Supplement, the Prospectus Supplement
together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant to the Custodial
Agreement, dated as of _______________ 1, ____, among the Company, the Master
Servicer, the Custodian and the Trustee (the "Custodial Agreement").
____________________________________ (the "Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to the
Assignment and Assumption Agreement, dated _________ __, ____ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, and the
Class M and Class B Certificates. The
<PAGE>
New Century Mortgage Securities, Inc.
[Underwriter]
[Trustee]
__________________ __, ____ 2.
Company will sell the Class A and the Class R Certificates other than a de
minimis portion thereof (the "Underwritten Certificates") to
_______________________ (the "Underwriter"), pursuant to the Underwriting
Agreement, dated _____________ __, ____, between the Company and the Underwriter
(the "Underwriting Agreement"; the Pooling and Servicing Agreement, the
Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms not
defined herein have the meanings ascribed to them in the Agreements. This
opinion letter is rendered pursuant to Section 6.4 of the Underwriting
Agreement.
The primary purpose of our professional engagement was to advise with
respect to legal matters and not to establish factual matters. Many
determinations involved in the preparation of the Prospectus Supplement were
factual. However, at the request of the Seller we reviewed the information
contained in the Prospectus Supplement (other than the information presented in
tabular form) under the captions "SUMMARY OF PROSPECTUS SUPPLEMENT - THE
MORTGAGE LOANS," "RISK FACTORS" and "THE MORTGAGE POOL" (collectively, the
"Information"). We were not engaged to and did not review any other portion of
the Prospectus Supplement or any portion of the Prospectus, and we did not
prepare any of the documents evidencing, or close, any of the Mortgage Loans.
We have not otherwise undertaken any procedures that were intended or
likely to elicit information concerning the accuracy, completeness or fairness
of the Information other than as provided below. We are not otherwise advising
in this letter with respect to the accuracy, completeness or fairness of
statistical, accounting or other financial information contained in the
Information or not contained in the Information and from which the Information
was derived. It is our position that we are not "experts" within the meaning of
Section 11 of the Securities Act of 1933, or "persons" within the meaning of
Section 11(a)(4) thereof, with respect to any portion of the Prospectus
Supplement or the Prospectus, including without limitation such accounting,
financial and statistical information.
Based upon and subject to the foregoing, this is to inform you that no
information has come to the attention of the attorneys in this firm who are
involved in the representation of the Seller in this matter that causes us to
believe that the Information, as of the date of the Prospectus Supplement or
hereof, contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
<PAGE>
New Century Mortgage Securities, Inc.
[Underwriter]
[Trustee]
__________________ __, ____ 3.
This letter is rendered for the sole benefit of each addressee hereof,
and no other person or entity is entitled to rely hereon. Copies of this letter
may not be made available, and this letter may not be quoted or referred to in
any other document made available, to any other person or entity except to (i)
any applicable rating agency, credit enhancer or governmental authority, (ii)
any accountant or attorney for any person or entity entitled hereunder to rely
hereon or to whom or which this letter may be made available as provided herein
or (iii) as otherwise required by law.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT B
[COUNSEL TO MASTER SERVICER LETTERHEAD]
_________________, 199_
[TRUSTEE]
_______________________________
_______________________________
_______________________________
[UNDERWRITER]
_______________________________
_______________________________
_______________________________
New Century Mortgage Securities, Inc.
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to New Century Mortgage Securities, Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series ____- ____ (the "Certificates"), pursuant to the Pooling and Servicing
Agreement, dated as of _______________ 1, ____ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and ___________________, as
trustee (the "Trustee"). The Certificates consist of ____________ classes
designated as Class A and Class R (collectively, the "Senior Certificates") and
____________ classes of subordinated certificates designated as Class M and
Class B. Only the Senior Certificates and the Class M Certificates
(collectively, the "Offered Certificates") are being offered under the
Prospectus, ________, and the Prospectus Supplement, the Prospectus Supplement
together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant to the Custodial
Agreement, dated as of _______________ 1, ____, among the Company, the Master
Servicer, the Custodian and the Trustee (the "Custodial Agreement").
____________________________________ (the "Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to the
Assignment and Assumption Agreement, dated _________ __, ____ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, and the
Class M and Class B Certificates. The Company will sell the Class A and the
Class R Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to _______________________ (the "Underwriter"), pursuant to the
Underwriting Agreement, dated _____________ __, ____, between the Company and
the Underwriter (the "Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial
<PAGE>
[Trustee]
[Underwriter]
____________________, 199_ 2.
Agreement, the Underwriting Agreement and the Assignment and Assumption
Agreement, collectively, the "Agreements"). Capitalized terms not defined herein
have the meanings ascribed to them in the Agreements. This opinion letter is
rendered pursuant to Section 6.4 of the Underwriting Agreement.
Based upon and stated in the foregoing, we are of the opinion that:
1. The Company and the Master Servicer are duly incorporated and are
validly existing as corporations in good standing under the laws of the State of
Delaware and the State of __________, respectively, and each has the requisite
power and authority, corporate or other, to own its properties and conduct its
business, as presently conducted by it, and to enter into and perform its
obligations under the Agreements.
2. Each of the Agreements has been duly and validly authorized,
executed and delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by other parties thereto, will constitute
the valid, legal and binding agreements of the Company and the Master Servicer,
enforceable against the Company and the Master Servicer in accordance with its
terms.
3. No consent, approval, authorization or order of the State of
__________ or federal court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for those consents,
approvals, authorizations or orders which previously have been obtained.
4. Neither the sale, issuance and delivery of the Underwritten
Certificates as provided in the Agreements, nor the consummation of any other of
the transactions contemplated by, or the fulfillment of any other of the terms
of, the Agreements, will result in a breach of any term or provision of the
charter or bylaws of the Company or the Master Servicer or any State of
Minnesota or federal statute or regulation or conflict with, result in a breach,
violation or acceleration of or constitute a default under the terms of any
indenture or other material agreement or instrument to which the Company or the
Master Servicer is a party or by which it is bound or any order or regulation of
any State of Minnesota or federal court, regulatory body, administrative agency
or governmental body having jurisdiction over the Company or the Master
Servicer.
Very truly yours,
COUNSEL TO MASTER SERVICER
<PAGE>
EXHIBIT C
[TRUSTEE'S COUNSEL'S LETTERHEAD]
________________, 199_
[UNDERWRITER] [Name of Master Servicer]
_______________________________ [Address of Master Servicer]
_______________________________
_______________________________
New Century Mortgage Securities, Inc.
18400 Von Karman, Suite 1000 [TRUSTEE]
Irvine, California 92612 ___________________________
___________________________
___________________________
Re: New Century Mortgage Securities, Inc.
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of the above-referenced Certificates
pursuant to the Pooling and Servicing Agreement, dated as of ____________ 1,
199_ (the "Pooling and Servicing Agreement"), among New Century Mortgage
Securities, Inc., as Company, [Name of Master Servicer], as Master Servicer and
_____________________, as Trustee (the "Trustee"), we have been asked to furnish
this opinion. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
In arriving at the opinions expressed below, we have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction, of the Pooling and Servicing Agreement and of such documents,
instruments and certificates, and we have made such investigations of law, as we
have deemed appropriate as the basis for the opinions expressed below. We have
assumed but have not verified that the signatures on all documents that we have
examined are genuine and that each person signing each such document was duly
authorized to sign such document on behalf of the person or entity purported to
be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and authority to execute and
deliver the Pooling and Servicing Agreement, the Custodial Agreement
and the Certificates and to perform its obligations under the Pooling
and Servicing Agreement and the Custodial Agreement.
2. Each of the Pooling and Servicing Agreement and the Custodial
Agreement has been duly authorized, executed and delivered by
the Trustee, and the Trustee has
<PAGE>
New Century Mortgage Securities, Inc.
____________________, 199_ Page 2.
duly executed and delivered the Certificates as provided in
the Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement is a legal, valid and
binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium,
receivership and similar laws affecting the rights of
creditors generally, and subject, as to enforceability, to
general principles of equity, regardless of whether such
enforcement is considered in a proceeding at law or in equity.
4. In the event that the Master Servicer defaults in its
obligation to make Advances pursuant to Section 4.03(b) of the
Pooling and Servicing Agreement, the Trustee is not, as of the
date hereof, prohibited by any provision of its Restated
Organization Certificate or By-Laws or by any provision of the
banking and trust laws of the State of New York from assuming,
pursuant to Section 7.02 of the Pooling and Servicing
Agreement, the obligation to make such Advances.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York.
We are furnishing this opinion to you solely for your benefit. This
opinion may not be used, circulated, quoted or otherwise referred to for any
other purpose.
Very truly yours,
____________________________
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
Excluded Information
<PAGE>
EXHIBIT F
Underwriter Information
<PAGE>
EXHIBIT G
__________________, 199_
New Century Mortgage Securities, Inc.
18400 Von Karman, Suite 1000
Irvine, California 92612
Re: New Century Mortgage Securities, Inc.,
Mortgage Pass-Through Certificates,
Series 199_- __, Class A and Class R
--------------------------------------
Pursuant to Section 4 of the Underwriting Agreement, dated
_______________, 199_, between New Century Mortgage Securities, Inc. and
________________________ (the "Underwriter") relating to the Certificates
referenced above (the "Underwriting Agreement"), the undersigned does hereby
certify that:
(a) The prepayment assumption used in pricing the Certificates was
______% SPA.
(b) Set forth below is (i), the first price, as a percentage of the
principal balance of each class of Certificates, at which 10% of the aggregate
principal balance of each such class of Certificates was sold to the public at a
single price, if applicable, or (ii) if more than 10% of a class of Certificates
have been sold to the public but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates, or (iii) if
less than 10% of the aggregate principal balance of a class of Certificates has
been sold to the public, the purchase price for each such class of Certificates
paid by the Underwriter expressed as a percentage of the principal balance of
such class of Certificates calculated by: (1) estimating the fair market value
of each such class of Certificates as of __________________, 199_; (2) adding
such estimated fair market value to the aggregate purchase price of each class
of Certificates described in clause (i) or (ii) above; (3) dividing each of the
fair market values determined in clause (1) by the sum obtained in clause (2);
(4) multiplying the quotient obtained for each class of Certificates in clause
(3) by the purchase price paid by the Underwriter for all the Certificates; and
(5) for each class of Certificates, dividing the product obtained from such
class of Certificates in clause (4) by the original principal balance of such
class of Certificates:
Class A: __________________
Class R: __________________
[* less than 10% has been sold to the public]
The prices set forth above do not include accrued interest with respect to
periods before closing.
<PAGE>
New Century Mortgage Securities, Inc.
__________________, 199_ Page 2.
_________________________________
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT I
[Form of Legend]
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEW CENTURY MORTGAGE SECURITIES, INC.
1. The name of the corporation (the "Corporation") is New
Century Mortgage Securities, Inc.
2. The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted by the Corporation is limited to the following activities and none
other:
A. To acquire as purchaser and/or by contribution to the
capital of the Corporation or otherwise, own, hold,
transfer, assign, sell, contribute to capital, pledge
and otherwise deal with (i) mortgage notes and
similar such instruments, related real property
mortgages and deeds of trust and other related
agreements, documents, books and records, (ii)
related rights to payment, whether constituting cash,
account, chattel paper, instrument, general
intangible or otherwise, and any other related
assets, property and rights, including without
limitation security interests, (iii) related
collection, deposit, custodial, trust and other
accounts, lock boxes and post office boxes and any
amounts and other items from time to time on deposit
<PAGE>
- 2 -
therein, (iv) real property and any improvements
thereon and personal property acquired by
foreclosure, deed-in-lieu thereof or otherwise in
respect of any of the foregoing, (v) certificates,
notes, bonds or other securities, instruments and
documents evidencing ownership interests in or
obligations secured by all or any of the foregoing
and (vi) proceeds and other payments and
distributions of any kind of, on or in respect of any
of the foregoing;
B. To authorize, issue, sell and deliver, directly or
indirectly through business trusts, common law trusts
or other entities established solely for such
purpose, certificates, notes, bonds and other
securities, instruments and documents evidencing
ownership interests in or obligations secured by all
or any portion of the assets described in foregoing
paragraph A, and in connection therewith to do all
such things as are reasonable and necessary to carry
out any of the above, including, without limitation,
entering into loan, servicing, insurance, credit
enhancement, reimbursement and other agreements
incidental thereto; and
C. To take any action reasonable or necessary to enable
the Corporation to engage in any lawful act or
activity and to exercise any powers permitted to
corporations organized under the laws of the State of
Delaware that are related or incidental to and
necessary, convenient or advisable to accomplish any
of the foregoing.
<PAGE>
- 3 -
The Corporation exists only for the purposes specified in this
paragraph 3, and may not conduct any other business without the unanimous
consent of its Board of Directors.
4. The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1,000), all of which shall be
without par value.
5. A. The Corporation shall at all times have at
least one director who shall not be a
director, officer or employee of any direct
or ultimate parent or affiliate of New
Century Mortgage Corporation; provided,
however, that such independent director may
serve in similar capacities for other
"special purpose corporations" formed by New
Century Mortgage Corporation or its
affiliates.
B. With respect to a vote for the filing of a
bankruptcy petition or other such action as
described in paragraph 6(ii) hereof, the
independent director shall owe his fiduciary
duty to the Corporation itself, including
the Corporation's creditors.
C. No resignation or removal (as described in
paragraph 15 below) of the independent
director shall be effective until a
successor independent director has been
elected to replace such resigning
independent director.
6. The affirmative unanimous vote of the holders of all of the
Corporation's outstanding common stock and the unanimous vote of the whole board
of directors at any meeting of the board of directors shall be necessary (i) for
the amendment of the Certificate of Incorporation of the Corporation and for the
amendment of the by-laws of the Corporation; or (ii)
<PAGE>
- 4 -
before the Corporation may take any action to institute proceedings to have
itself adjudicated as bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or seek or consent to the entry
of any order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, or seek
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or make any general
assignment for the benefit of creditors, or take any corporate action in
furtherance of any of the actions set forth above in this paragraph; or (iii) to
take any corporate action in furtherance of any of the actions set forth above
in this paragraph 6(ii).
7. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after the filing of this Certificate of Incorporation to authorize corporate
action eliminating or further limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of the foregoing portion of this paragraph
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
<PAGE>
- 5 -
8. Elections of directors need not be by written ballot unless
the by-laws of the Corporation shall so provide.
9. Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law which otherwise so empowers the
Corporation, the Corporation shall not perform any act in contravention of any
of the following:
A. The Corporation shall not (i) consolidate or merge
with or into any other entity or person or dissolve
or liquidate in whole or in part or transfer its
properties and assets substantially as an entirety to
any entity or (ii) engage in any other action that
bears on whether the separate legal identity of the
Corporation and New Century Mortgage Corporation will
be respected, including, without limitation (a)
holding itself out as being liable for the debts of
any other party; (b) forming, or causing to be
formed, any subsidiaries or (c) acting other than in
its corporate name and through its duly authorized
officers or agents;
B. The Corporation shall not engage in any joint
activity or transaction of any kind with or for the
benefit of any Related Company (as defined below),
including loans to or from any Related Company and
any guarantee of the indebtedness of any Related
Company, except for (i) entering into the agreements
referenced in paragraph 3, (ii) purchasing management
services and leasing office space or equipment, in
each case only to the extent necessary for the
conduct of the Corporation's business, and (iii)
payment
<PAGE>
- 6 -
of lawful dividends and capital distributions to its
shareholder or shareholders;
C. The Corporation shall not create, incur, assume,
guarantee or in any manner become liable in respect
of any indebtedness, except as stated in paragraph 3,
other than trade payables and expense accruals
incurred in the ordinary course of business and which
are incident to the business purpose of the
Corporation as stated in paragraph 3 above; and
D. The Corporation shall not commingle its funds and
assets with those of any Related Company.
"Related Company" means the shareholder or shareholders of the
Corporation or any entity other than the Corporation now or hereafter controlled
directly or indirectly by, or under direct or indirect common control with, the
shareholders of the Corporation.
10. The Corporation (A) shall maintain its financial and
accounting books and records separate from those of any other entity or person,
(B) shall pay from its assets all obligations and indebtedness of any kind
incurred by it, and shall not pay from its assets any obligations or
indebtedness of any other entity or person, and (C) shall observe all corporate
formalities required by its Certificate of Incorporation, by-laws and the laws
of the State of Delaware.
11. The name and mailing address of the sole incorporator is
as follows: Susan A.T. Tice Thacher Proffitt & Wood Two World Trade Center, 39th
floor New York, New York 10048
<PAGE>
- 7 -
12. The Corporation is to have perpetual existence.
13. Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of the
Corporation.
14. Except as otherwise provided by statute, any action which
might have been taken by a vote of the stockholders at a meeting thereof
(including any action under paragraphs 6, 15 and 17 hereof) may be taken with
the written consent of such of the holders of stock who would have been entitled
to vote upon the action if a meeting were held as have not less than the minimum
percentage of the total vote required for the proposed action by statute, this
Certificate of Incorporation or the by-laws of the Corporation, as may be
applicable (but in the case of the election of a director or directors, not less
than a majority of the stock of the Corporation entitled to vote); provided that
prompt notice shall be given to all stockholders of the taking of such corporate
action without a meeting if less than unanimous written consent is obtained.
15. Any director may be removed from office either with or
without cause at any time by the affirmative vote of stockholders of record
holding a majority of the outstanding shares of the stock of the Corporation
entitled to vote, given at a meeting of the stockholders called for that purpose
(or as provided in paragraph 14 above).
16. Any action required or permitted to be taken at a meeting
of the Board of Directors, other than an action requiring shareholder approval,
may be taken by written action signed by the number of directors that would be
required to take the same action at a meeting of the Board of Directors at which
all directors were present.
<PAGE>
- 8 -
17. In furtherance and not in limitation of the power
conferred upon the Board of Directors by law, the Board of Directors shall have
power to make, adopt, alter, amend and repeal from time to time by-laws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter, amend and repeal by-laws made by the Board of
Directors.
18. Subject to the limitations in paragraph 6 of this
Certificate of Incorporation, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights and powers conferred upon stockholders, directors and officers herein are
granted subject to this reservation.
<PAGE>
- 9 -
THE UNDERSIGNED, being the incorporator, for the purpose of
forming a corporation pursuant to the provisions of the Delaware General
Corporation Law, does make this certificate, hereby declaring and further
certifying that this is the undersigned's act and deed and that the facts herein
stated are true, and, accordingly, have hereunto set the undersigned's hand this
19th day of March, 1999.
/s/ Susan A.T. Tice
------------------------------
Susan A.T. Tice
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
EXHIBIT 3.2
BY-LAWS
OF
NEW CENTURY MORTGAGE SECURITIES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of Newcastle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meeting the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of
<PAGE>
the proposed meeting. Written notice of a Special Meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where
-2-
<PAGE>
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER ELECTION AND REMOVAL OF DIRECTORS. The Board
of Directors shall consist of not less than one nor more than five members the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. The Board of Directors
shall at all times include at least one independent director who is not a
director, officer or employee of the Corporation's direct or indirect parent.
Except as provided in Section 2 of this Article, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders and each director
so elected shall hold office until the next Annual Meeting and until his
successor is duly elected and qualified or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders. At any time, directors may be removed and
their successors chosen by the unanimous written consent of the holders of the
outstanding stock of the Corporation entitled to vote on the election of
directors. No removal of the independent director shall be effective until a
successor independent director has been elected to replace such removed
independent director.
SECTION 2. VACANCIES. Subject to Section 1 of this Article,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, or until their earlier
resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any two directors.
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Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone or telegram on twenty-four (24) hours notice,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these ByLaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the mem bers of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance
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at each meeting of the Board of Directors or a stated salary as director. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
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SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more
Vice-Presidents or Assistant Vice-Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. The Corporation shall at all times have at least
one executive officer who is not a director, officer or employee of the direct
or indirect parent of the Corporation. Any number of offices may be held by the
same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of
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the Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any
Vice-President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
SECTION 6. VICE-PRESIDENTS. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice-President or the
Vice-Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice-President shall perform such other duties and have such
other powers as the Board of
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Directors from time to time may prescribe. If there be no Chairman of the Board
of Directors and no Vice-President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice-President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
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SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
Vice-President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
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SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that
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may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
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SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
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GENERAL PROVISIONS
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SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
it self, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit were brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reason ably incurred by him in connection therewith, without the necessity
of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corpo ration or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
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Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not withstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized in this Article VIII.
SECTION 7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION.
The indemnification provided by this Article VIII shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification provided by this Article VIII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
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SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE
VIII. For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the name
position under the provisions of this Article VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE IX
AMENDMENTS
----------
SECTION 1. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors that the Corporation would have if there were no
vacancies.
-13-
Exhibit 4.1
NEW CENTURY MORTGAGE SECURITIES, INC.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer
and
[NAME OF TRUSTEE]
Trustee
-----------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, ___
-----------------------------------------
Mortgage Pass-Through Certificates
Series 199_-__
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Defined Terms...................................................................................4
Accepted Servicing Practices....................................................................4
Accrued Certificate Interest....................................................................4
Addition Notice.................................................................................4
Adjustment Date.................................................................................4
Affiliate.......................................................................................5
Agreement.......................................................................................5
Assignment......................................................................................5
Available Distribution Amount...................................................................5
Bankruptcy Amount...............................................................................6
Bankruptcy Code.................................................................................6
Bankruptcy Loss.................................................................................6
Book-Entry Certificate..........................................................................6
Book-Entry Custodian............................................................................6
Business Day....................................................................................6
Cash-Out Refinancing............................................................................6
Certificate.....................................................................................6
Certificate Factor..............................................................................6
Certificateholder or Holder.....................................................................6
Certificate Owner...............................................................................7
Certificate Principal Balance...................................................................7
Certificate Register............................................................................7
Class .......................................................................................7
Class A Certificate.............................................................................7
Class A Principal Distribution Amount...........................................................7
Class CE Certificate............................................................................8
Class Exemption.................................................................................8
Class M-1 Certificate...........................................................................8
Class M-1 Principal Distribution Amount.........................................................8
Class M-2 Certificate...........................................................................8
Class M-2 Principal Distribution Amount.........................................................8
Class M-3 Certificate...........................................................................8
Class M-3 Principal Distribution Amount.........................................................9
Class P Certificate.............................................................................9
Class R-I Certificate...........................................................................9
Class R-II Certificate..........................................................................9
Class R-III Certificates........................................................................9
-i-
<PAGE>
SECTION PAGE
------- ----
Closing Date....................................................................................9
Code .......................................................................................9
Collection Account..............................................................................9
Commission......................................................................................9
Corporate Trust Office..........................................................................9
Corresponding Certificate......................................................................10
Credit Enhancement Percentage..................................................................10
Cumulative Loss Percentage.....................................................................10
Cut-off Date...................................................................................10
Debt Service Reduction.........................................................................10
Deficient Valuation............................................................................10
Definitive Certificates........................................................................10
Deleted Mortgage Loan..........................................................................10
Delinquency Percentage.........................................................................11
Depositor......................................................................................11
Depository.....................................................................................11
Depository Institution.........................................................................11
Depository Participant.........................................................................11
Determination Date.............................................................................11
Directly Operate...............................................................................11
Disqualified Organization......................................................................12
Distribution Account...........................................................................12
Distribution Date..............................................................................12
DOL ......................................................................................12
DOL Regulations................................................................................12
Due Date ......................................................................................12
Due Period.....................................................................................12
Eligible Account...............................................................................12
ERISA ......................................................................................13
Estate in Real Property........................................................................13
Excess Bankruptcy Loss.........................................................................13
Excess Fraud Loss..............................................................................13
Excess Loss....................................................................................13
Excess Overcollateralized Amount...............................................................13
Excess Special Hazard Loss.....................................................................13
Expense Adjusted Mortgage Rate.................................................................13
Extraordinary Loss.............................................................................13
Fannie Mae.....................................................................................14
FDIC ......................................................................................14
Final Recovery Determination...................................................................14
Fitch ......................................................................................14
Fraud Loss.....................................................................................14
Fraud Loss Amount..............................................................................14
-ii-
<PAGE>
SECTION PAGE
------- ----
Freddie Mac....................................................................................15
Funding Period.................................................................................15
Gross Margin...................................................................................15
Independent....................................................................................15
Independent Contractor.........................................................................15
Index ......................................................................................16
Initial Mortgage Loan..........................................................................16
Insurance Proceeds.............................................................................16
Interest Accrual Period........................................................................16
Interest Carry Forward Amount..................................................................16
Interest Coverage Account......................................................................16
Interest Coverage Amount.......................................................................16
Interest Determination Date....................................................................17
Interest Distribution Amount...................................................................17
Interest Remittance Amount.....................................................................17
Late Collections...............................................................................17
Liquidation Event..............................................................................17
Liquidation Proceeds...........................................................................17
Loan-to-Value Ratio............................................................................17
London Business Day............................................................................17
Majority Class CE Certificateholder............................................................18
Master Servicer................................................................................18
Master Servicer Event of Default...............................................................18
Master Servicer Remittance Date................................................................18
Master Servicer Termination Test...............................................................18
Maximum I-LT6 Uncertificated Interest Deferral Amount..........................................18
Maximum Mortgage Rate..........................................................................18
Mezzanine Certificate..........................................................................18
Minimum Mortgage Rate..........................................................................18
Monthly Payment................................................................................18
Mortgage ......................................................................................19
Mortgage File..................................................................................19
Mortgage Loan..................................................................................19
Mortgage Loan Purchase Agreement...............................................................19
Mortgage Loan Schedule.........................................................................19
Mortgage Note..................................................................................21
Mortgage Pool..................................................................................21
Mortgage Rate..................................................................................21
Mortgaged Property.............................................................................22
Mortgagor......................................................................................22
Net Monthly Excess Cashflow....................................................................22
Net Mortgage Rate..............................................................................22
Net WAC Pass-Through Rate......................................................................22
-iii-
<PAGE>
SECTION PAGE
------- ----
New Lease......................................................................................22
Nonrecoverable P&I Advance.....................................................................23
Nonrecoverable Servicing Advance...............................................................23
Non-United States Person.......................................................................23
Notional Amount................................................................................23
Officers' Certificate..........................................................................23
One-Month LIBOR................................................................................23
One-Month LIBOR Pass-Through Rate..............................................................24
Opinion of Counsel.............................................................................24
Original Pre-Funded Amount.....................................................................24
Overcollateralized Amount......................................................................24
Overcollateralization Deficiency Amount........................................................25
Overcollateralization Increase Amount..........................................................25
Overcollateralization Reduction Amount.........................................................25
Ownership Interest.............................................................................25
Pass-Through Rate..............................................................................25
Percentage Interest............................................................................26
Periodic Rate Cap..............................................................................27
Permitted Investments..........................................................................27
Permitted Transferee...........................................................................28
Person ......................................................................................28
P&I Advance....................................................................................28
Plan ......................................................................................28
Pre-Funding Account............................................................................28
Prepayment Assumption..........................................................................28
Prepayment Charge..............................................................................28
Prepayment Charge Schedule.....................................................................28
Prepayment Interest Shortfall..................................................................29
Prepayment Period..............................................................................29
Principal Distribution Amount..................................................................29
Principal Prepayment...........................................................................30
PTCE ......................................................................................30
Purchase Price.................................................................................30
Qualified Substitute Mortgage Loan.............................................................31
Rate/Term Refinancing..........................................................................31
Rating Agency or Rating Agencies...............................................................32
Realized Loss..................................................................................32
Record Date....................................................................................33
Reference Banks................................................................................33
Refinanced Mortgage Loan.......................................................................33
Regular Certificate............................................................................33
Regular Interest...............................................................................33
Relief Act.....................................................................................33
-iv-
<PAGE>
SECTION PAGE
------- ----
Relief Act Interest Shortfall..................................................................33
REMIC ......................................................................................33
REMIC I ......................................................................................33
REMIC I Interest Loss Allocation Amount........................................................34
REMIC I Overcollateralized Amount..............................................................34
REMIC I Principal Loss Allocation Amount.......................................................34
REMIC I Regular Interest.......................................................................34
REMIC I Regular Interest I-LT1.................................................................34
REMIC I Regular Interest I-LT2.................................................................35
REMIC I Regular Interest I-LT3.................................................................35
REMIC I Regular Interest I-LT4.................................................................35
REMIC I Regular Interest I-LT5.................................................................35
REMIC I Regular Interest I-LT6.................................................................35
REMIC I Regular Interest I-LTP.................................................................35
REMIC I Remittance Rate........................................................................36
REMIC I Required Overcollateralized Amount.....................................................36
REMIC II ......................................................................................36
REMIC II Regular Interest......................................................................36
REMIC II Regular Interest II-LT1...............................................................36
REMIC II Regular Interest II-LT2...............................................................36
REMIC II Regular Interest II-LT3...............................................................36
REMIC II Regular Interest II-LT4...............................................................37
REMIC II Regular Interest II-LT5...............................................................37
REMIC II Regular Interest II-LT6...............................................................37
REMIC II Regular Interest II-LTP...............................................................37
REMIC II Regular Interest II-LT2S..............................................................37
REMIC II Regular Interest II-LT3S..............................................................37
REMIC II Regular Interest II-LT4S..............................................................37
REMIC II Regular Interest II-LT5S..............................................................37
REMIC II Remittance Rate.......................................................................38
REMIC III......................................................................................38
REMIC III Certificate..........................................................................38
Remittance Report..............................................................................38
Rents from Real Property.......................................................................38
REO Account....................................................................................38
REO Disposition................................................................................38
REO Imputed Interest...........................................................................39
REO Principal Amortization.....................................................................39
REO Property...................................................................................39
Request for Release............................................................................39
Required Overcollateralized Amount.............................................................39
Reserve Interest Rate..........................................................................39
Residential Dwelling...........................................................................39
-v-
<PAGE>
SECTION PAGE
------- ----
Residual Certificate...........................................................................40
Residual Interest..............................................................................40
Responsible Officer............................................................................40
Scheduled Principal Balance....................................................................40
Senior Interest Distribution Amount............................................................41
Servicing Account..............................................................................41
Servicing Advances.............................................................................41
Servicing Fee..................................................................................41
Servicing Fee Rate.............................................................................41
Servicing Officer..............................................................................41
Single Certificate.............................................................................41
Special Hazard Amount..........................................................................42
Special Hazard Loss............................................................................42
S&P ......................................................................................42
Startup Day....................................................................................42
Stated Principal Balance.......................................................................43
Stayed Funds...................................................................................43
Stepdown Date..................................................................................43
Subsequent Cut-off Date........................................................................44
Subsequent Mortgage Loan.......................................................................44
Subsequent Mortgage Loan Purchase Agreement....................................................44
Subsequent Transfer Date.......................................................................44
Subsequent Transfer Instrument.................................................................44
Sub-Servicer...................................................................................44
Sub-Servicing Account..........................................................................44
Sub-Servicing Agreement........................................................................44
Tax Returns....................................................................................44
Telerate Page 3750.............................................................................44
Termination Price..............................................................................44
Terminator.....................................................................................45
Transfer ......................................................................................45
Transferee.....................................................................................45
Transferor.....................................................................................45
Trigger Event..................................................................................45
Trust Fund.....................................................................................45
Trustee ......................................................................................45
Trustee's Fee..................................................................................45
Trustee's Fee Rate.............................................................................45
Uncertificated Balance.........................................................................45
Uncertificated Corresponding Component.........................................................45
Uncertificated Interest........................................................................46
Uncertificated Notional Amount.................................................................46
Uninsured Cause................................................................................46
-vi-
<PAGE>
SECTION PAGE
------- ----
United States Person...........................................................................46
Value ......................................................................................47
Voting Rights..................................................................................47
1.02. Allocation of Certain Interest Shortfalls......................................................47
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of the Mortgage Loans...............................................................49
2.02. Acceptance of REMIC I by Trustee...............................................................51
2.03. Repurchase or Substitution of Mortgage Loans by the Seller or the
Depositor......................................................................................52
2.04. Representations and Warranties of the Depositor................................................55
2.05. Representations, Warranties and Covenants of the Master Servicer...............................57
2.06. Issuance of the Class R-I Certificates.........................................................60
2.07. Conveyance of the REMIC I Regular Interests; Acceptance of REMIC II
by the Trustee.................................................................................60
2.08. Issuance of Class R-II Certificates............................................................61
2.09. Conveyance of REMIC II Regular Interests; Acceptance of REMIC III by
the Trustee....................................................................................61
2.10. Issuance of REMIC III Certificates.............................................................61
2.11. Conveyance of the Subsequent Mortgage Loans....................................................61
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
3.01. Master Servicer to Act as Master Servicer......................................................65
3.02. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers.............................67
3.03. Successor Sub-Servicers........................................................................68
3.04. Liability of the Master Servicer...............................................................68
3.05. No Contractual Relationship Between Sub-Servicers and Trustee or
Certificateholders.............................................................................69
3.06. Assumption or Termination of Sub-Servicing Agreements by Trustee...............................69
3.07. Collection of Certain Mortgage Loan Payments...................................................70
3.08. Sub-Servicing Accounts.........................................................................70
3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts.........................70
3.10. Collection Account and Distribution Account....................................................71
3.11. Withdrawals from the Collection Account and Distribution Account...............................74
-vii-
<PAGE>
SECTION PAGE
------- ----
3.12. Investment of Funds in the Interest Coverage Account, Collection Account
and the Distribution Account...................................................................76
3.13. [intentionally omitted]........................................................................77
3.14. Maintenance of Hazard Insurance and Errors and Omissions and Fidelity
Coverage.......................................................................................77
3.15. Enforcement of Due-On-Sale Clauses; Assumption Agreements......................................79
3.16. Realization Upon Defaulted Mortgage Loans......................................................80
3.17. Trustee to Cooperate; Release of Mortgage Files................................................82
3.18. Servicing Compensation.........................................................................83
3.19. Reports to the Trustee; Collection Account Statements..........................................83
3.20. Statement as to Compliance.....................................................................84
3.21. Independent Public Accountants' Servicing Report...............................................84
3.22. Access to Certain Documentation................................................................85
3.23. Title, Management and Disposition of REO Property..............................................85
3.24. Obligations of the Master Servicer in Respect of Prepayment Interest
Shortfall......................................................................................88
3.25. Obligations of the Master Servicer in Respect of Mortgage Rates and
Monthly Payments...............................................................................88
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Distributions..................................................................................90
4.02. Statements to Certificateholders...............................................................96
4.03. Remittance Reports; P&I Advances..............................................................100
4.04. Allocation of Realized Losses.................................................................101
4.05. Compliance with Withholding Requirements......................................................103
4.06. Exchange Commission; Additional Information...................................................103
4.07. Pre-Funding Account...........................................................................103
4.08. Interest Coverage Account.....................................................................105
ARTICLE V
THE CERTIFICATES
5.01. The Certificates..............................................................................106
5.02. Registration of Transfer and Exchange of Certificates.........................................108
5.03. Mutilated, Destroyed, Lost or Stolen Certificates.............................................112
5.04. Persons Deemed Owners.........................................................................113
5.05. Certain Available Information.................................................................113
-viii-
<PAGE>
SECTION PAGE
------- ----
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
6.01. Liability of the Depositor and the Master Servicer............................................114
6.02. Merger or Consolidation of the Depositor or the Master Servicer...............................114
6.03. Limitation on Liability of the Depositor, the Master Servicer and Others......................114
6.04. Limitation on Resignation of the Master Servicer..............................................115
6.05. Rights of the Depositor in Respect of the Master Servicer.....................................116
ARTICLE VII
DEFAULT
7.01. Master Servicer Events of Default.............................................................117
7.02. Trustee to Act; Appointment of Successor......................................................119
7.03. Notification to Certificateholders............................................................120
7.04. Waiver of Master Servicer Events of Default...................................................120
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01. Duties of Trustee.............................................................................122
8.02. Certain Matters Affecting the Trustee.........................................................123
8.03. Trustee Not Liable for Certificates or Mortgage Loans.........................................124
8.04. Trustee May Own Certificates..................................................................124
8.05. Trustee's Fees and Expenses...................................................................125
8.06. Eligibility Requirements for Trustee..........................................................125
8.07. Resignation and Removal of the Trustee........................................................125
8.08. Successor Trustee.............................................................................126
8.09. Merger or Consolidation of Trustee............................................................127
8.10. Appointment of Co-Trustee or Separate Trustee.................................................127
8.11. Appointment of Office or Agency...............................................................128
8.12. Representations and Warranties of the Trustee.................................................128
ARTICLE IX
TERMINATION
9.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans..............................130
9.02 Additional Termination Requirements...........................................................132
-ix-
<PAGE>
SECTION PAGE
------- ----
ARTICLE X
REMIC PROVISIONS
10.01. REMIC Administration..........................................................................134
10.02. Prohibited Transactions and Activities........................................................137
10.03. Master Servicer and Trustee Indemnification...................................................137
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Amendment.....................................................................................138
11.02. Recordation of Agreement; Counterparts........................................................139
11.03. Limitation on Rights of Certificateholders....................................................139
11.04. Governing Law.................................................................................140
11.05. Notices.......................................................................................140
11.06. Severability of Provisions....................................................................141
11.07. Notice to Rating Agencies.....................................................................141
11.08. Article and Section References................................................................142
11.09. Grant of Security Interest....................................................................142
-x-
</TABLE>
<PAGE>
EXHIBITS
- --------
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class M-1 Certificate
Exhibit A-3 Form of Class M-2 Certificate
Exhibit A-4 Form of Class M-3 Certificate
Exhibit A-5 Form of Class CE Certificate
Exhibit A-6 Form of Class P Certificate
Exhibit A-7 Form of Class R-I Certificate
Exhibit A-8 Form of Class R-II Certificate
Exhibit A-9 Form of Class R-III Certificate
Exhibit B [Reserved]
Exhibit C-1 Form of Trustee's Initial Certification
Exhibit C-2 Form of Trustee's Final Certification
Exhibit D Form of Mortgage Loan Purchase Agreement
Exhibit E-1 Request for Release
Exhibit E-2 Request for Release Mortgage Loans paid in full
Exhibit F-1 Form of Transferor Representation Letter and Form of Transferee
Representation Letter in Connection with Transfer of the Class CE
Certificates or Class P Certificates Pursuant to Rule 144A Under
the 1933 Act
Exhibit F-2 Form of Transfer Affidavit and Agreement and Form of Transferor
Affidavit in Connection with Transfer of Residual Certificates
Exhibit G Form of Certification with respect to ERISA and the Code
Exhibit H Form of Report Pursuant to Section 4.06
Exhibit I Form of Subsequent Transfer Instrument
Exhibit J Form of Addition Notice
Exhibit K Form of Lost Note Affidavit
Schedule 1 Mortgage Loan Schedule
Schedule 2 Prepayment Charge Schedule
-xi-
<PAGE>
This Pooling and Servicing Agreement, is dated and effective
as of _________ 1, ____, among NEW CENTURY MORTGAGE SECURITIES, INC. as
Depositor, [NAME OF MASTER SERVICER] as Master Servicer and [NAME OF TRUSTEE] as
Trustee.
PRELIMINARY STATEMENT:
The Depositor intends to sell pass-through certificates to be
issued hereunder in multiple classes, which in the aggregate will evidence the
entire beneficial ownership interest in each REMIC (as defined herein) created
hereunder. The Trust Fund will consist of a segregated pool of assets comprising
of the Mortgage Loans, the Pre-Funding Account and the Interest Coverage Account
(each as defined herein) and certain other related assets subject to this
Agreement.
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the Mortgage Loans and certain other
related assets subject to this Agreement (other than the Pre-Funding Account and
the Interest Coverage Account) as a REMIC (as defined herein) for federal income
tax purposes, and such segregated pool of assets will be designated as "REMIC
I." The Class R-I Certificates will be the sole class of "residual interests" in
REMIC I for purposes of the REMIC Provisions (as defined herein) and will have
an initial Certificate Principal Balance of $100 and a Pass-Through Rate as
described herein. The following table irrevocably sets forth the designation,
the REMIC I Remittance Rate, the initial Uncertificated Balance and, solely for
purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the
"latest possible maturity date" for each of the REMIC I Regular Interests (as
defined herein). None of the REMIC I Regular Interests will be certificated.
<TABLE>
<CAPTION>
REMIC I Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
----------- --------------- ---------------------- ----------------
<S> <C> <C> <C>
I-LT1 Variable(2)
I-LT2 Variable(2)
I-LT3 Variable(2)
I-LT4 Variable(2)
I-LT5 Variable(2)
I-LT6 Variable(2)
I-LTP (3) $100.00
</TABLE>
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date" for each REMIC I Regular Interest.
(2) Calculated in accordance with the definition of "REMIC I Remittance Rate"
herein.
(3) The REMIC I Regular Interest I-LTP will not accrue interest.
-1-
<PAGE>
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC
for federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC II." The Class R-II Certificates will evidence the sole
class of "residual interests" in REMIC II for purposes of the REMIC Provisions
and will have an initial Certificate Principal Balance of $100 and a
Pass-Through Rate as described herein. The following table irrevocably sets
forth the designation, the REMIC II Remittance Rate, the initial Uncertificated
Balance and, solely for purposes of satisfying Treasury regulation Section
1.860G-1(a)(4)(iii), the "latest possible maturity date" for each of the REMIC
II Regular Interests. None of the REMIC II Regular Interests will be
certificated.
<TABLE>
<CAPTION>
REMIC II Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
----------- --------------- ---------------------- ----------------
<S> <C> <C> <C>
II-LT1 Variable(2)
II-LT2 Variable(2)
II-LT3 Variable(2)
II-LT4 Variable(2)
II-LT5 Variable(2)
II-LT6 Variable(2)
II-LTP (3)
II-LT2S Variable(2) (4)
II-LT3S Variable(2) (4)
II-LT4S Variable(2) (4)
II-LT5S Variable(2) (4)
</TABLE>
- -----------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity
date for the Mortgage Loan with the latest maturity date has been
designated as the "latest possible maturity date" for each REMIC II
Regular Interest.
(2) Calculated in accordance with the definition of "REMIC II Remittance
Rate" herein.
(3) The REMIC II Regular Interest II-LTP will not accrue interest.
(4) This REMIC II Regular Interest has no Uncertificated Principal Balance
but will accrue interest at the related REMIC II Remittance Rate on the
related Uncertificated Notional Amount, which is equal to the
Uncertificated Balance of the Uncertificated Corresponding Component.
-2-
<PAGE>
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC II Regular Interests as a
REMIC for federal income tax purposes, and such segregated pool of assets will
be designated as "REMIC III." The Class R-III Certificates will evidence the
sole class of "residual interests" in REMIC III for purposes of the REMIC
Provisions under federal income tax law. The following table irrevocably sets
forth the designation, the Pass-Through Rate, the initial aggregate Certificate
Principal Balance and, solely for purposes of satisfying Treasury regulation
Section 1.860G-1(a)(4)(iii), the "latest possible maturity date" for the
indicated Classes of Certificates.
<TABLE>
<CAPTION>
Initial Aggregate Latest Possible
Designation Pass-through Rate Certificate Principal Balance Maturity Date(1)
----------- ----------------- ----------------------------- ----------------
<S> <C> <C> <C>
Class A Variable(2)
Class M-1 Variable(2)
Class M-2 Variable(2)
Class M-3 Variable(2)
Class CE Variable(2)
Class P (4) $100.00
Class R-III Variable(2)(5) $100.00 N/A
</TABLE>
- -------------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity
date for the Mortgage Loans with the latest maturity date has been
designated as the "latest possible maturity date" for each Class of
Certificates.
(2) Calculated in accordance with the definition of "Pass-Through Rate"
herein.
(3) The Class CE Certificates will accrue interest at their variable
Pass-Through Rate on the Notional Amount of the Class CE Certificates
outstanding from time to time which shall equal the Uncertificated
Balance of the REMIC II Regular Interests (other than the Uncertificated
Balance of REMIC II Regular Interest II-LTP). The Class CE Certificates
will not accrue interest on their Certificate Principal Balance.
(4) The Class P Certificates will not accrue interest.
(5) The Class R-III Certificates will only receive interest on the
Distribution Date in October 1998.
As of the Cut-off Date, the Initial Mortgage Loans had an
aggregate Scheduled Principal Balance equal to $_______________. The amount
deposited by the Depositor in the Pre-Funding Account on the Closing Date is $
______________.
In consideration of the mutual agreements herein contained,
the Depositor, the Master Servicer and the Trustee agree as follows:
-3-
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, including, without
limitation, in the Preliminary Statement hereto, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Unless otherwise specified, all calculations
described herein shall be made on the basis of a 360-day year consisting of
twelve 30-day months.
"Accepted Servicing Practices": The servicing standards set
forth in Section 3.01.
"Accrued Certificate Interest": With respect to any Class of
Certificates (other than the Class P Certificates) and each Distribution Date,
interest accrued during the related Interest Accrual Period at the Pass-Through
Rate for such Certificate for such Distribution Date on the Certificate
Principal Balance, in the case of the Class A Certificates, the Mezzanine
Certificates and the Residual Certificates, or on the Notional Amount, in the
case of the Class CE Certificate, of such Certificate immediately prior to such
Distribution Date. The Class P Certificates are not entitled to distributions in
respect of interest and, accordingly, will not accrue interest. All
distributions of interest on the Class A Certificates and the Mezzanine
Certificates will be calculated on the basis of a 360-day year and the actual
number of days in the applicable Interest Accrual Period. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class A Certificate,
Mezzanine Certificate or Class CE Certificate, shall be reduced by an amount
equal to the portion allocable to such Certificate pursuant to Section 1.02
hereof of the sum of (a) the aggregate Prepayment Interest Shortfall, if any,
for such Distribution Date to the extent not covered by payments pursuant to
Section 3.24 and (b) the aggregate amount of any Relief Act Interest Shortfall,
if any, for such Distribution Date. In addition, Accrued Certificate Interest
with respect to each Distribution Date, as to any Class CE Certificate, shall be
reduced by an amount equal to the portion allocable to such Class CE Certificate
of Realized Losses, if any, pursuant to Section 4.04 hereof.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust Fund pursuant to Section 2.11, a notice of the
Depositor's designation of the Subsequent Mortgage Loans to be sold to the Trust
Fund and the aggregate principal balance of such Subsequent Mortgage Loans as of
the Subsequent Cut-off Date. The Addition Notice shall be given not later than
three Business Days prior to the related Subsequent Transfer Date and shall be
substantially in the form of Exhibit J.
"Adjustment Date": With respect to each Mortgage Loan, the
first day of the month in which the Mortgage Rate of a Mortgage Loan changes
pursuant to the related Mortgage Note. The first Adjustment Date following the
Cut-off Date as to each Mortgage Loan is set forth in the Mortgage Loan
Schedule.
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"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Available Distribution Amount": With respect to any
Distribution Date, an amount equal to (1) the sum of (a) the aggregate of the
amounts on deposit in the Collection Account and Distribution Account as of the
close of business on the related Determination Date, (b) the aggregate of any
amounts received in respect of an REO Property withdrawn from any REO Account
and deposited in the Distribution Account for such Distribution Date pursuant to
Section 3.23, (c) the aggregate of any amounts deposited in the Distribution
Account by the Master Servicer in respect of Prepayment Interest Shortfalls for
such Distribution Date pursuant to Section 3.24, (d) the aggregate of any P&I
Advances made by the Master Servicer for such Distribution Date pursuant to
Section 4.03, (e) the aggregate of any advances made by the Trustee for such
Distribution Date pursuant to Section 7.02(b), (f) with respect to the
Distribution Date immediately following the end of the Funding Period, any
amounts in the Pre-Funding Account after giving effect to any purchase of
Subsequent Mortgage Loans and (g) with respect to each Distribution Date during
the Funding Period and on the Distribution Date immediately following the end of
the Funding Period, any amounts withdrawn by the Trustee from the Interest
Coverage Account for distribution on the Certificates, reduced (to not less than
zero), by (2) the sum of (x) the portion of the amount described in clause
(1)(a) above that represents (i) Monthly Payments on the Mortgage Loans received
from a Mortgagor on or prior to the Determination Date but due during any Due
Period subsequent to the related Due Period, (ii) Principal Prepayments on the
Mortgage Loans received after the related Prepayment Period (together with any
interest payments received with such Principal Prepayments to the extent they
represent the payment of interest accrued on the Mortgage Loans during a period
subsequent to the related Prepayment Period), (iii) Liquidation Proceeds and
Insurance Proceeds received in respect of the Mortgage Loans after the related
Prepayment Period, (iv) amounts reimbursable or payable to the Depositor, the
Master Servicer, the Trustee, the Seller or any Sub-Servicer pursuant to Section
3.11 or Section 3.12 or otherwise payable in respect of extraordinary trust fund
expenses, (v) Stayed Funds, (vi) the Trustee Fee payable from the Distribution
Account pursuant to Section 8.05, (vii) amounts deposited in the Collection
Account or the Distribution Account in error and (viii) the amount of any
Prepayment Charges collected by the Master Servicer in connection with the
Principal
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Prepayment of any of the Mortgage Loans, and (y) amounts reimbursable to the
Trustee for an advance made pursuant to Section 7.02(b) which advance the
Trustee has determined to be nonrecoverable from the Stayed Funds in respect of
which it was made.
"Bankruptcy Amount": As of any date of determination,
$_________ minus the aggregate amount of Bankruptcy Losses on the Mortgage
Loans, if any, previously allocated to the Mezzanine Certificates and the Class
CE Certificates in accordance with Section 4.04.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11
of the United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Realized Loss resulting from a Deficient Valuation or Debt Service Reduction.
"Book-Entry Certificate": The Class A Certificates and the
Mezzanine Certificates for so long as the Certificates of such Class shall be
registered in the name of the Depository or its nominee.
"Book-Entry Custodian": The custodian appointed pursuant to
Section 5.01.
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking or savings and loan institutions in the State of ________,
the State of ____________ or in the city in which the Corporate Trust Office of
the Trustee is located, are authorized or obligated by law or executive order to
be closed.
"Cash-Out Refinancing": A Refinanced Mortgage Loan the
proceeds of which are not more than a nominal amount in excess of the principal
balance of any existing first mortgage or subordinate mortgage on the related
Mortgaged Property and related closing costs.
"Certificate": Any one of the Depositor's Mortgage
Pass-Through Certificates, Series 199__-_____, Class A, Class M-1, Class M-2,
Class M-3, Class CE, Class P, Class R-I, Class R-II or Class R-III, issued under
this Agreement.
"Certificate Factor": With respect to any Class of Regular
Certificates as of any Distribution Date, a fraction, expressed as a decimal
carried to six places, the numerator of which is the aggregate Certificate
Principal Balance (or the Notional Amount, in the case of the Class CE
Certificates) of such Class of Certificates on such Distribution Date (after
giving effect to any distributions of principal and allocations of Realized
Losses in reduction of the Certificate Principal Balance (or the Notional
Amount, in the case of the Class CE Certificates) of such Class of Certificates
to be made on such Distribution Date), and the denominator of which is the
initial aggregate Certificate Principal Balance (or the Notional Amount, in the
case of the Class CE Certificates) of such Class of Certificates as of the
Closing Date.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that a
Disqualified Organization or a Non-United
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States Person shall not be a Holder of a Residual Certificate for any purposes
hereof and, solely for the purposes of giving any consent pursuant to this
Agreement, any Certificate registered in the name of the Depositor or the Master
Servicer or any Affiliate thereof shall be deemed not to be outstanding and the
Voting Rights to which it is entitled shall not be taken into account in
determining whether the requisite percentage of Voting Rights necessary to
effect any such consent has been obtained, except as otherwise provided in
Section 11.01. The Trustee may conclusively rely upon a certificate of the
Depositor or the Master Servicer in determining whether a Certificate is held by
an Affiliate thereof. All references herein to "Holders" or "Certificateholders"
shall reflect the rights of Certificate Owners as they may indirectly exercise
such rights through the Depository and participating members thereof, except as
otherwise specified herein; provided, however, that the Trustee shall be
required to recognize as a "Holder" or "Certificateholder" only the Person in
whose name a Certificate is registered in the Certificate Register.
"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate as reflected on the
books of the Depository or on the books of a Depository Participant or on the
books of an indirect participating brokerage firm for which a Depository
Participant acts as agent.
"Certificate Principal Balance": With respect to each Class A
Certificate, Mezzanine Certificate, Class P Certificate or Residual Certificate
as of any date of determination, the Certificate Principal Balance of such
Certificate on the Distribution Date immediately prior to such date of
determination, minus all distributions allocable to principal made thereon and
Realized Losses allocated thereto on such immediately prior Distribution Date
(or, in the case of any date of determination up to and including the first
Distribution Date, the initial Certificate Principal Balance of such
Certificate, as stated on the face thereof). With respect to each Class CE
Certificate as of any date of determination, an amount equal to the Percentage
Interest evidenced by such Certificate times the excess, if any, of (A) the then
aggregate Uncertificated Balances of the REMIC II Regular Interests over (B) the
then aggregate Certificate Principal Balances of the Class A Certificates, the
Mezzanine Certificates, the Class P Certificates and the Residual Certificates
then outstanding.
"Certificate Register": The register maintained pursuant to
Section 5.02.
"Class": Collectively, all of the Certificates bearing the
same class designation.
"Class A Certificate": Any one of the Class A Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-1 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
"Class A Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the Certificate Principal Balance of the Class
A Certificates immediately prior to such Distribution Date over (y) the lesser
of (A) the product of (i) ______% and (ii) the aggregate Stated Principal
Balance of the Mortgage Loans as of the last day of the related Due Period and
(B) the aggregate
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Stated Principal Balance of the Mortgage Loans as of the last day of the related
Due Period minus $____________.
"Class CE Certificate": Any one of the Class CE Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-5 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
"Class Exemption": A class exemption granted by the DOL, which
provides relief from certain of the prohibited transaction provisions of ERISA
and the related excise tax provisions of the Code.
"Class M-1 Certificate": Any one of the Class M-1 Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-2 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
"Class M-1 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date) and (ii)
the Certificate Principal Balance of the Class M-1 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
_______% and (ii) the aggregate Stated Principal Balance of the Mortgage Loans
as of the last day of the related Due Period and (B) the aggregate Stated
Principal Balance of the Mortgage Loans as of the last day of the related Due
Period minus $_____________.
"Class M-2 Certificate": Any one of the Class M-2 Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-3 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
"Class M-2 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class M-1 Certificates (after taking into
account the payment of the Class M-1 Principal Distribution Amount on such
Distribution Date) and (iii) the Certificate Principal Balance of the Class M-2
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) _______% and (ii) the aggregate Stated Principal Balance
of the Mortgage Loans as of the last day of the related Due Period and (B) the
aggregate Stated Principal Balance of the Mortgage Loans as of the last day of
the related Due Period minus $____________.
"Class M-3 Certificate": Any one of the Class M-3 Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-4 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
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"Class M-3 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class M-1 Certificates (after taking into
account the payment of the Class M-1 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-2
Certificates (after taking into account the payment of the Class M-2 Principal
Distribution Amount on such Distribution Date) and (iv) the Certificate
Principal Balance of the Class M-3 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) ________% and
(ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last
day of the related Due Period and (B) the aggregate Stated Principal Balance of
the Mortgage Loans as of the last day of the related Due Period minus
$_________.
"Class P Certificate": Any one of the Class P Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-6 and evidencing a Regular Interest in REMIC III for
purposes of the REMIC Provisions.
"Class R-I Certificate": Any one of the Class R-I Certificates
executed, authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-7 and evidencing the Residual Interest in REMIC I
for purposes of the REMIC Provisions.
"Class R-II Certificate": Any one of the Class R-II
Certificates executed, authenticated and delivered by the Trustee, substantially
in the form annexed hereto as Exhibit A-8 and evidencing the Residual Interest
in REMIC II for purposes of the REMIC Provisions.
"Class R-III Certificates": Any one of the Class R-III
Certificates executed, authenticated and delivered by the Trustee, substantially
in the form annexed hereto as Exhibit A-9 and evidencing the Residual Interest
in REMIC III for purposes of the REMIC Provisions.
"Closing Date": ___________, ______.
"Code": The Internal Revenue Code of 1986.
"Collection Account": The account or accounts created and
maintained, or caused to be created and maintained, by the Master Servicer
pursuant to Section 3.10(a), which shall be entitled
"____________________________, as Master Servicer for _____________________, as
Trustee, in trust for the registered holders of ______________________________,
___________________________________ Mortgage Pass-Through Certificates, Series
________" The Collection Account must be an Eligible Account.
"Commission": The Securities and Exchange Commission.
"Corporate Trust Office": The principal corporate trust office
of the Trustee at which at any particular time its corporate trust business in
connection with this Agreement shall be administered, which office at the date
of the execution of this instrument is located
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at____________________________, or at such other address as the Trustee may
designate from time to time by notice to the Certificateholders, the Depositor
and the Master Servicer.
"Corresponding Certificate": With respect to REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4,
REMIC I Regular Interest I- LT5 and REMIC I Regular Interest I-LTP, the Class A
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
Certificates and Class P Certificates, respectively. With respect to REMIC II
Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4, REMIC II Regular Interest II-LT5 and REMIC II Regular Interest
II-LTP, the Class A Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates and Class P Certificates, respectively.
"Credit Enhancement Percentage": For any Distribution Date,
the percentage equivalent of a fraction, the numerator of which is the sum of
the aggregate Certificate Principal Balances of the Mezzanine Certificates and
the Class CE Certificates, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans, calculated after taking into account
distributions of principal on the Mortgage Loans and distribution of the
Principal Distribution Amount to the Certificates then entitled to distributions
of principal on such Distribution Date.
"Cumulative Loss Percentage": With respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
aggregate amount of Realized Losses incurred from the Cut-off Date to the last
day of the preceding calendar month and the denominator of which is the sum of
the aggregate Stated Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date and the Original Pre-Funded Amount.
"Cut-off Date": With respect to each Initial Mortgage Loan,
___________ 1, 199__. With respect to all Qualified Substitute Mortgage Loans,
their respective dates of substitution. References herein to the "Cut-off Date,"
when used with respect to more than one Mortgage Loan, shall be to the
respective Cut-off Dates for such Mortgage Loans.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient Valuation.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding
initiated under the Bankruptcy Code.
"Definitive Certificates": As defined in Section 5.01(b).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
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"Delinquency Percentage": As of the last day of the related
Due Period, the percentage equivalent of a fraction, the numerator of which is
the aggregate Stated Principal Balance of all Mortgage Loans that, as of the
last day of the previous calendar month, are 60 or more days delinquent, are in
foreclosure, have been converted to REO Properties or have been discharged by
reason of bankruptcy, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans as of the last day of the previous
calendar month.
"Depositor": Salomon Brothers Mortgage Securities VII, Inc., a
Delaware corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository, for purposes
of registering those Certificates that are to be Book-Entry Certificates, is
CEDE & Co. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust
company, including the Trustee, that (a) is incorporated under the laws of the
United States of America or any State thereof, (b) is subject to supervision and
examination by federal or state banking authorities and (c) has outstanding
unsecured commercial paper or other short-term unsecured debt obligations (or,
in the case of a depository institution that is the principal subsidiary of a
holding company, such holding company has unsecured commercial paper or other
short-term unsecured debt obligations) that are rated F-1 by Fitch and A-1 by
S&P (or comparable ratings if Fitch and S&P are not the Rating Agencies).
"Depository Participant": A broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"Determination Date": With respect to each Distribution Date,
the 15th day of the calendar month in which such Distribution Date occurs or, if
such 15th day is not a Business Day, the Business Day immediately preceding such
15th day.
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, the holding of such REO Property primarily for
sale to customers, the performance of any construction work thereon or any use
of such REO Property in a trade or business conducted by REMIC I other than
through an Independent Contractor; provided, however, that the Trustee (or the
Master Servicer on behalf of the Trustee) shall not be considered to Directly
Operate an REO Property solely because the Trustee (or the Master Servicer on
behalf of the Trustee) establishes rental terms, chooses tenants, enters into or
renews leases, deals with taxes and insurance, or makes decisions as to repairs
or capital expenditures with respect to such REO Property.
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"Disqualified Organization": Any of the following: (i) the
United States, any State or political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality which is a corporation if all of its activities are
subject to tax and, except for Freddie Mac, a majority of its board of directors
is not selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code, (v) an "electing
large partnership" and (vi) any other Person so designated by the Trustee based
upon an Opinion of Counsel that the holding of an Ownership Interest in a
Residual Certificate by such Person may cause any of REMIC I, REMIC II or REMIC
III or any Person having an Ownership Interest in any Class of Certificates
(other than such Person) to incur a liability for any federal tax imposed under
the Code that would not otherwise be imposed but for the Transfer of an
Ownership Interest in a Residual Certificate to such Person. The terms "United
States," "State" and "international organization" shall have the meanings set
forth in Section 7701 of the Code or successor provisions.
"Distribution Account": The trust account or accounts created
and maintained by the Trustee pursuant to Section 3.10(b), which shall be
entitled "-------------------------, as Trustee, in trust for the registered
holders of New Century Mortgage Securities, Inc., Mortgage Pass-through
Certificates, Series 199_-______." The Distribution Account must be an Eligible
Account.
"Distribution Date": The 25th day of any month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day, commencing in ____________________.
"DOL": The United States Department of Labor or any successor
in interest.
"DOL Regulations": The regulations promulgated by the DOL at
29 C.F.R. ss. 2510.3-101.
"Due Date": With respect to each Distribution Date, the first
day of the calendar month in which such Distribution Date occurs, which is
generally the day of the month on which the Monthly Payment is due on a Mortgage
Loan, exclusive of any days of grace.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month immediately preceding the month
in which such Distribution Date occurs and ending on the related Due Date.
"Eligible Account": Any of (i) an account or accounts
maintained with a Depository Institution, (ii) an account or accounts the
deposits in which are fully insured by the FDIC or (iii) a trust account or
accounts maintained with the corporate trust department of a
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federal or state chartered depository institution or trust company acting in its
fiduciary capacity. Eligible Accounts may bear interest.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended.
"Estate in Real Property": A fee simple estate in a parcel of
land.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion
thereof, which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which
exceeds the then applicable Fraud Loss Amount.
"Excess Loss": Any Excess Bankruptcy Loss, Excess Special
Hazard Loss, Excess Fraud Loss or Extraordinary Loss.
"Excess Overcollateralized Amount": With respect to the Class
A Certificates and the Mezzanine Certificates and any Distribution Date, the
excess, if any, of (i) the Overcollateralized Amount for such Distribution Date
over (ii) the Required Overcollateralized Amount for such Distribution Date.
"Excess Special Hazard Loss": Any Special Hazard Loss, or
portion thereof, that exceeds the then applicable Special Hazard Amount.
"Expense Adjusted Mortgage Rate": With respect to any Mortgage
Loan or REO Property, the then applicable Mortgage Rate thereon minus the sum of
(i) the Trustee's Fee Rate and (ii) the Servicing Fee Rate.
"Extraordinary Loss": Any Realized Loss or portion thereof
caused by or resulting from:
(i) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether
controlled or uncontrolled and whether such loss be
direct or indirect, proximate or remote or be in
whole or in part caused by, contributed to or
aggravated by a peril covered by the definition of
the term "Special Hazard Loss";
(ii) hostile or warlike action in time of peace or war,
including action in hindering, combating or defending
against an actual, impending or expected attack by
any government or sovereign power, DE JURE or DE
FACTO, or by any authority maintaining or using
military, naval or air forces, or by military, naval
or air forces, or by an agent of any such government,
power, authority or forces;
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(iii) any weapon of war employing atomic fission or
radioactive forces whether in time of peace or war;
and
(iv) insurrection, rebellion, revolution, civil war,
usurped power or action taken by governmental
authority in hindering, combating or defending
against such an occurrence, seizure or destruction
under quarantine or customs regulations, confiscation
by order of any government or public authority, or
risks of contraband or illegal transactions or trade.
"Fannie Mae": Fannie Mae, formerly known as the Federal
National Mortgage Association ("FNMA"), or any successor thereto.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"Final Recovery Determination": With respect to any defaulted
Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property
purchased by the Seller, the Depositor, the Majority Class CE Certificateholder
or the Master Servicer pursuant to or as contemplated by Section 2.03, Section
3.16(c) or Section 9.01), a determination made by the Master Servicer that all
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Master Servicer, in its reasonable good faith judgment, expects to be
finally recoverable in respect thereof have been so recovered. The Master
Servicer shall maintain records, prepared by a Servicing Officer, of each Final
Recovery Determination made thereby.
["Fitch": Fitch IBCA, Inc. or its successor in interest.]
"Fraud Loss": Any Realized Loss or portion thereof sustained
by reason of a default arising from intentional fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the
Cut-off Date, an amount equal to: (X) prior to the first anniversary of the
Cut-off Date, _____% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the Original Pre-Funded Amount
(initially, $___________), minus the aggregate amount of Fraud Losses on the
Mortgage Loans allocated to the Mezzanine Certificates and the Class CE
Certificates in accordance with Section 4.04 since the Cut-off Date up to such
date of determination, (Y) from the first anniversary to the day prior to the
second anniversary of the Cutoff Date, an amount equal to (1) the lesser of (a)
the Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and
(b) ________% of the aggregate outstanding principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (2)
the Fraud Losses allocated to the Mezzanine Certificates and the Class CE
Certificates in accordance with Section 4.04 since the most recent anniversary
of the Cut-off Date up to such date of determination and (Z) from the second
anniversary to the day prior to the fifth anniversary of the Cut-off Date, an
amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the most
recent anniversary of the Cut-off Date and (b) _______% of the aggregate
outstanding principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-off Date minus (2) the
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Fraud Losses on the Mortgage Loans allocated to the Mezzanine Certificates and
the Class CE Certificates in accordance with Section 4.04 since the most recent
anniversary of the Cut-off Date up to such date of determination. On and after
the fifth anniversary of the Cut-off Date the Fraud
Loss Amount shall be zero.
"Freddie Mac": Freddie Mac, formerly known as the Federal Home
Loan Mortgage Corporation ("FHLMC"), or any successor thereto.
"Funding Period": The period beginning on the Closing Date and
ending on the earlier of the date on which (a) the amount on deposit in the
Pre-Funding Account is reduced to zero or (b) _________________________ time, on
___________________.
"Gross Margin": With respect to each Mortgage Loan, the fixed
percentage set forth in the related Mortgage Note that is added to the Index on
each Adjustment Date in accordance with the terms of the related Mortgage Note
used to determine the Mortgage Rate for such Mortgage Loan.
"Independent": When used with respect to any specified Person,
any such Person who (a) is in fact independent of the Depositor, the Master
Servicer and their respective Affiliates, (b) does not have any direct financial
interest in or any material indirect financial interest in the Depositor, the
Master Servicer or any Affiliate thereof, and (c) is not connected with the
Depositor, the Master Servicer or any Affiliate thereof as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions; provided, however, that a Person shall not fail to be Independent of
the Depositor, the Master Servicer or any Affiliate thereof merely because such
Person is the beneficial owner of 1% or less of any class of securities issued
by the Depositor, the Master Servicer or any Affiliate thereof, as the case may
be.
"Independent Contractor": Either (i) any Person (other than
the Master Servicer) that would be an "independent contractor" with respect to
REMIC I within the meaning of Section 856(d)(3) of the Code if REMIC I were a
real estate investment trust (except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35% or more of any Class of Certificates), so long as REMIC I does
not receive or derive any income from such Person and provided that the
relationship between such Person and REMIC I is at arm's length, all within the
meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person
(including the Master Servicer) if the Trustee has received an Opinion of
Counsel to the effect that the taking of any action in respect of any REO
Property by such Person, subject to any conditions therein specified, that is
otherwise herein contemplated to be taken by an Independent Contractor will not
cause such REO Property to cease to qualify as "foreclosure property" within the
meaning of Section 860G(a)(8) of the Code (determined without regard to the
exception applicable for purposes of Section 860D(a) of the Code), or cause any
income realized in respect of such REO Property to fail to qualify as Rents from
Real Property.
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"Index": With respect to each Mortgage Loan and each related
Adjustment Date, the average of the interbank offered rates for six-month United
States dollar deposits in the London market as published in THE WALL STREET
JOURNAL and as most recently available either (i) as of the first business day
45 days prior to such Adjustment Date or (ii) as of the first business day of
the month preceding the month of such Adjustment Date, as specified in the
related Mortgage Note.
"Initial Mortgage Loan": Any of the Mortgage Loans included in
REMIC I as of the Closing Date.
"Insurance Proceeds": Proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with the procedures that the
Master Servicer would follow in servicing mortgage loans held for its own
account, subject to the terms and conditions of the related Mortgage Note and
Mortgage.
"Interest Accrual Period": With respect to any Distribution
Date and the Class A Certificates, the Mezzanine Certificates, the Residual
Certificates, REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT5,
REMIC II Regular Interest II-LT2S, REMIC II Regular Interest II-LT3S, REMIC II
Regular Interest II-LT4S and REMIC II Regular Interest II-LT5S, the period
commencing on the Distribution Date of the month immediately preceding the month
in which such Distribution Date occurs (or, in the case of the first
Distribution Date, commencing on the Closing Date) and ending on the day
preceding such Distribution Date. With respect to any Distribution Date and
REMIC II Regular Interest II-LT1, REMIC II Regular Interest II-LT6 and the REMIC
I Regular Interests, the one-month period ending on the last day of the calendar
month preceding the month in which such Distribution Date occurs.
"Interest Carry Forward Amount": With respect to any
Distribution Date and any Class of Class A Certificates or Mezzanine
Certificates, the sum of (i) the amount, if any, by which (a) the Interest
Distribution Amount for such Class of Certificates as of the immediately
preceding Distribution Date exceeded (b) the actual amount distributed on such
Class of Certificates in respect of interest on such immediately preceding
Distribution Date and (ii) the amount of any Interest Carry Forward Amount for
such Class of Certificates remaining unpaid from previous Distribution Dates.
With respect to such Classes of Certificates, any Interest Carry Forward Amount
paid pursuant to Section 4.01 will include accrued interest on such amount,
calculated at the related Pass-Through Rate for each Interest Accrual Period
such amount remained outstanding.
"Interest Coverage Account": The account established and
maintained pursuant to Section 4.08, as defined therein.
"Interest Coverage Amount": The amount to be paid by the
Depositor to the Trustee for deposit into the Interest Coverage Account on the
Closing Date pursuant to Section 4.08, which amount is $_______________.
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"Interest Determination Date": With respect to the Class A
Certificates, the Mezzanine Certificates, REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT2S, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II-LT3S, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT4S, REMIC II Regular Interest II-LT5, REMIC II Regular Interest
II-LT5S, REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I
Regular Interest I-LT4 and REMIC I Regular Interest I-LT5, and any Interest
Accrual Period therefor, the second London Business Day preceding the
commencement of such Interest Accrual Period.
"Interest Distribution Amount": With respect to any
Distribution Date and any Class of Certificates (other than the Class P
Certificates), the aggregate Accrued Certificate Interest on the Certificates of
such Class for such Distribution Date.
"Interest Remittance Amount": With respect to any Distribution
Date, that portion of the Available Distribution Amount for such Distribution
Date allocable to interest.
"Late Collections": With respect to any Mortgage Loan and any
Due Period, all amounts received subsequent to the Determination Date
immediately following such Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of principal and/or interest due (without
regard to any acceleration of payments under the related Mortgage and Mortgage
Note) but delinquent for such Due Period and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of
the following events: (i) such Mortgage Loan is paid in full; (ii) a Final
Recovery Determination is made as to such Mortgage Loan; or (iii) such Mortgage
Loan is removed from REMIC I by reason of its being purchased, sold or replaced
pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01.
With respect to any REO Property, either of the following events: (i) a Final
Recovery Determination is made as to such REO Property; or (ii) such REO
Property is removed from REMIC I by reason of its being purchased pursuant to
Section 9.01.
"Liquidation Proceeds": The amount (other than Insurance
Proceeds or amounts received in respect of the rental of any REO Property prior
to REO Disposition) received by the Master Servicer in connection with (i) the
taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage
Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the
repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by Section 2.03, Section 3.16(c), Section 3.23 or Section
9.01.
"Loan-to-Value Ratio": As of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at such date and the denominator of which
is the Value of the related Mortgaged Property.
"London Business Day": Any day on which banks in the City of
London are open and conducting transactions in United States dollars.
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"Majority Class CE Certificateholder": Any single Holder or
group of Holders of Class CE Certificates representing a greater than 50%
Percentage Interest in such Class.
"Master Servicer": _________________________ or any successor
master servicer appointed as herein provided, in its capacity as Master Servicer
hereunder.
"Master Servicer Event of Default": One or more of the events
described in Section 7.01.
"Master Servicer Remittance Date": With respect to any
Distribution Date, _______________________ time on the 18th day of the calendar
month in which such Distribution Date occurs or, if such 18th day is not a
Business Day, the Business Day immediately succeeding such 18th day.
"Master Servicer Termination Test": With respect to any
Distribution Date, the Master Servicer Termination Test will be failed if the
Cumulative Loss Percentage exceeds _________%.
"Maximum I-LT6 Uncertificated Interest Deferral Amount": With
respect to any Distribution Date, the excess of (i) accrued interest at the
REMIC I Remittance Rate applicable to REMIC I Regular Interest I-LT6 for such
Distribution Date on a balance equal to the Uncertificated Balance of REMIC I
Regular Interest I-LT6 minus the REMIC I Overcollateralized Amount, in each case
for such Distribution Date, over (ii) Uncertificated Interest on REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4
and REMIC I Regular Interest I-LT5 for such Distribution Date.
"Maximum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the maximum Mortgage
Rate thereunder.
"Mezzanine Certificate": Any Class M-1 Certificate, Class M-2
Certificate or Class M-3 Certificate.
"Minimum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the minimum Mortgage
Rate thereunder.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by the related Mortgagor from time to time under the related Mortgage
Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or
Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction
in the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Master Servicer pursuant to Section 3.07; and (c) on the assumption that all
other amounts, if any, due under such Mortgage Loan are paid when due.
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"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, a Mortgaged
Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned
to the Trustee pursuant to Section 2.01 or Section 2.03(d) of this Agreement or
pursuant to a Subsequent Transfer Instrument, as held from time to time as a
part of the Trust Fund, the Mortgage Loans
so held being identified in the Mortgage Loan Schedule.
"Mortgage Loan Purchase Agreement": The agreement between the
Depositor and the Seller, regarding the transfer of the Mortgage Loans by the
Seller to the Depositor, substantially in the form of Exhibit D annexed hereto.
"Mortgage Loan Schedule": As of any date, the list of Mortgage
Loans included in REMIC I on such date, attached hereto as Schedule 1 as
supplemented by each schedule of Subsequent Mortgage Loans attached to a
Subsequent Transfer Instrument. The Mortgage Loan Schedule shall set forth the
following information with respect to each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the
state and zip code;
(iv) a code indicating whether the Mortgaged Property is
owner-occupied;
(v) the type of Residential Dwelling constituting the
Mortgaged Property;
(vi) the original months to maturity;
(vii) the stated remaining months to maturity from the Cut-off
Date (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan) based on the original
amortization schedule;
(viii) the Loan-to-Value Ratio at origination;
(ix) the Mortgage Rate in effect immediately following the
Cut-off Date (or Subsequent Cut-off Date, with respect to
a Subsequent Mortgage Loan);
(x) (A) the date on which the first Monthly Payment was due on
the Mortgage Loan and, (B) if such date is not consistent
with the Due Date currently in effect, such Due Date;
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(xi) the stated maturity date;
(xii) the amount of the Monthly Payment at origination;
(xiii) the amount of the Monthly Payment due on the first Due
Date after the Cut-off Date (or Subsequent Cut-off Date,
with respect to a Subsequent Mortgage
Loan);
(xiv) the last Due Date on which a Monthly Payment was actually
applied to the unpaid Stated Principal Balance;
(xv) the original principal amount of the Mortgage Loan;
(xvi) the Scheduled Principal Balance of the Mortgage Loan as of
the close of business on the Cut-off Date (or Subsequent
Cut-off Date, with respect to a Subsequent Mortgage Loan);
(xvii) the Adjustment Dates;
(xviii) the Gross Margin;
(xix) a code indicating the purpose of the Mortgage Loan (I.E.,
purchase financing, Rate/Term Refinancing, Cash-Out
Refinancing);
(xx) the Maximum Mortgage Rate;
(xxi) the Minimum Mortgage Rate;
(xxii) the Mortgage Rate at origination;
(xxiii) the Periodic Rate Cap and the maximum first Adjustment
Date Mortgage Rate adjustment;
(xxiv) a code indicating the documentation program (I.E., Full
Documentation, Limited Documentation, Stated Income
Documentation);
(xxv) [intentionally omitted];
(xxvi) the first Adjustment Date immediately following the
Cut-off Date (or Subsequent Cut-off Date, with respect to
a Subsequent Mortgage Loan);
(xxvii) the risk grade;
(xxviii) [intentionally omitted];
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(xxix) [intentionally omitted];
(xxx) [intentionally omitted];
(xxxi) the Value of the Mortgaged Property;
(xxxii) the sale price of the Mortgaged Property, if applicable;
(xxxiii) the actual unpaid principal balance of the Mortgage Loan
as of the Cut-off Date (or Subsequent Cut-off Date, with
respect to a Subsequent Mortgage Loan);
(xxxiv) the type and term of the related Prepayment Charge;
(xxxv) [intentionally omitted];
(xxxvi) [intentionally omitted];
(xxxvii) the rounding code (I.E., nearest 0.125%, next highest
0.125%);
(xxxviii) [intentionally omitted];
(xxxix) [intentionally omitted];
(xl) the program code.
The Mortgage Loan Schedule shall set forth the following
information with respect to the Mortgage Loans in the aggregate as of the
Cut-Off Date (or Subsequent Cut-off Date, with respect to the Subsequent
Mortgage Loans): (1) the number of Mortgage Loans; (2) the current principal
balance of the Mortgage Loans; (3) the weighted average Mortgage Rate of the
Mortgage Loans; and (4) the weighted average maturity of the Mortgage Loans. The
Mortgage Loan Schedule shall be amended from time to time by the Depositor in
accordance with the provisions of this Agreement. With respect to any Qualified
Substitute Mortgage Loan, the Cut-off Date shall refer to the related Cut-off
Date for such Mortgage Loan, determined in accordance with the definition of
Cut-off Date herein.
"Mortgage Note": The original executed note or other evidence
of the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on
Schedule 1 from time to time, and any REO Properties acquired in respect
thereof.
"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note, which rate (A) as
of any date of determination until the first Adjustment Date following the
Cut-off Date shall be the rate set forth in the Mortgage Loan
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Schedule as the Mortgage Rate in effect immediately following the Cut-off Date
(or Subsequent Cut-off Date, with respect to a Subsequent Mortgage Loan) and (B)
as of any date of determination thereafter shall be the rate as adjusted on the
most recent Adjustment Date equal to the sum, rounded to the nearest 0.125% as
provided in the Mortgage Note, of the Index, as most recently available as of a
date prior to the Adjustment Date as set forth in the related Mortgage Note,
plus the related Gross Margin; provided that the Mortgage Rate on such Mortgage
Loan on any Adjustment Date shall never be more than the lesser of (i) the sum
of the Mortgage Rate in effect immediately prior to the Adjustment Date plus the
related Periodic Rate Cap, if any, and (ii) the related Maximum Mortgage Rate,
and shall never be less than the greater of (i) the Mortgage Rate in effect
immediately prior to the Adjustment Date less the Periodic Rate Cap, if any, and
(ii) the related Minimum Mortgage Rate. With respect to each Mortgage Loan that
becomes an REO Property, as of any date of determination, the annual rate
determined in accordance with the immediately preceding sentence as of the date
such Mortgage Loan became an REO Property.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, including any REO Property, consisting of an Estate in Real
Property improved by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Monthly Excess Cashflow": With respect to any
Distribution Date, the sum of (i) any Overcollateralization Reduction Amount for
such Distribution Date and (ii) the excess of (x) the Available Distribution
Amount for such Distribution Date over (y) the sum for such Distribution Date of
(A) the Interest Distribution Amount payable to the holders of the Class A
Certificates, the Mezzanine Certificates and the Residual Certificates and (B)
the sum of the amounts described in clauses (b)(i) through (iii) of the
definition of Principal Distribution Amount.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the
related REO Property) as of any date of determination, a per annum rate of
interest equal to the then applicable Mortgage Rate for such Mortgage Loan minus
the Servicing Fee Rate.
"Net WAC Pass-Through Rate": With respect to the REMIC II
Regular Interests, the Class A Certificates, the Mezzanine Certificates and the
Residual Certificates and any Distribution Date, a per annum rate equal to the
fraction, expressed as a percentage, the numerator of which is (i) an amount
equal to 1/12 of the aggregate Scheduled Principal Balance of the then
outstanding Mortgage Loans and REO Properties multiplied by the weighted average
of the Expense Adjusted Mortgage Rates on such Mortgage Loans and REO
Properties, and the denominator of which is (ii) an amount equal to (A) the sum
of the aggregate Scheduled Principal Balance of the then outstanding Mortgage
Loans and REO Properties multiplied by (B) the actual number of days elapsed in
the related Interest Accrual Period divided by 360.
"New Lease": Any lease of REO Property entered into on behalf
of REMIC I, including any lease renewed or extended on behalf of REMIC I, if
REMIC I has the right to renegotiate the terms of such lease.
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"Nonrecoverable P&I Advance": Any P&I Advance previously made
or proposed to be made in respect of a Mortgage Loan or REO Property that, in
the good faith business judgment of the Master Servicer, will not or, in the
case of a proposed P&I Advance, would not be ultimately recoverable from related
Late Collections, Insurance Proceeds or Liquidation Proceeds on such Mortgage
Loan or REO Property as provided herein.
"Nonrecoverable Servicing Advance": Any Servicing Advance
previously made or proposed to be made in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the Master Servicer, will
not or, in the case of a proposed Servicing Advance, would not be ultimately
recoverable from related Late Collections, Insurance Proceeds or Liquidation
Proceeds on such Mortgage Loan or REO Property as provided herein.
"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": With respect to the Class CE Certificates
and any Distribution Date, the Uncertificated Balance of the REMIC II Regular
Interests (other than the Uncertificated Balance of REMIC II Regular Interest
II-LTP) for such Distribution Date.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), and by the Treasurer, the Secretary, or one of the
assistant treasurers or assistant secretaries of the Master Servicer, the Seller
or the Depositor, as applicable.
"One-Month LIBOR": With respect to the Class A Certificates,
the Mezzanine Certificates and the Residual Certificates and REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4 and REMIC II Regular Interest II-LT5 and any Interest Accrual Period
therefor, the rate determined by the Trustee on the related Interest
Determination Date on the basis of the offered rate for one-month U.S. dollar
deposits, as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on such Interest Determination Date; provided that if such rate does not
appear on Telerate Page 3750, the rate for such date will be determined on the
basis of the offered rates of the Reference Banks for one-month U.S. dollar
deposits, as of 11:00 a.m. (London time) on such Interest Determination Date. In
such event, the Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If on such Interest
Determination Date, two or more Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of such offered quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%). If on such Interest Determination Date, fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the related
Interest Accrual Period shall be the higher of (i) LIBOR as determined on the
previous Interest Determination Date and (ii) the Reserve Interest Rate.
Notwithstanding the foregoing, if, under the priorities described above, LIBOR
for an Interest Determination Date would be based on LIBOR for the previous
Interest Determination Date for the third consecutive Interest Determination
Date, the Trustee shall select an alternative comparable index (over which the
Trustee has no control), used for determining one-month Eurodollar lending rates
that is calculated and published (or otherwise made available) by an independent
party.
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"One-Month LIBOR Pass-Through Rate": With respect to the Class
A Certificates, the Residual Certificates and REMIC II Regular Interest II-LT2,
a per annum rate equal to One- Month LIBOR plus __________%, in the case of each
Distribution Date through and including the Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage Loans and each REO Property
remaining in the Trust Fund is reduced to less than _____% of the sum of the
aggregate Stated Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date and the Original Pre-Funded Amount, or One-Month LIBOR plus
______%, in the case of any Distribution Date thereafter.
With respect to the Class M-1 Certificates and REMIC II
Regular Interest II-LT3, a per annum rate equal to One-Month LIBOR plus 0.370%,
in the case of each Distribution Date through and including the Distribution
Date on which the aggregate Stated Principal Balance of the Mortgage Loans and
each REO Property remaining in the Trust Fund is reduced to less than 5% of the
sum of the aggregate Stated Principal Balance of the Initial Mortgage Loans as
of the Cut-off Date and the Original Pre-Funded Amount, or One-Month LIBOR plus
0.555%, in the case of any Distribution Date thereafter.
With respect to the Class M-2 Certificates and REMIC II
Regular Interest II-LT4, a per annum rate equal to One-Month LIBOR plus
_______%, in the case of each Distribution Date through and including the
Distribution Date on which the aggregate Stated Principal Balance of the
Mortgage Loans and each REO Property remaining in the Trust Fund is reduced to
less than ________% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the Original Pre-Funded
Amount, or One-Month LIBOR plus _________%, in the case of any Distribution Date
thereafter.
With respect to the Class M-3 Certificates and REMIC II
Regular Interest II-LT5, a per annum rate equal to One-Month LIBOR plus
__________%, in the case of each Distribution Date through and including the
Distribution Date on which the aggregate Stated Principal Balance of the
Mortgage Loans and each REO Property remaining in the Trust Fund is reduced to
less than ______% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the Original Pre-Funded
Amount, or One-Month LIBOR plus ______%, in the case of any Distribution Date
thereafter.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be salaried counsel for the Depositor or the Master Servicer
acceptable to the Trustee, except that any opinion of counsel relating to (a)
the qualification of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of Independent counsel.
"Original Pre-Funded Amount": The amount deposited by the
Depositor in the Pre- Funding Account on the Closing Date, which amount is
$_____________.
"Overcollateralized Amount": With respect to any Distribution
Date, the excess, if any, of (a) the aggregate Stated Principal Balances of the
Mortgage Loans immediately following such Distribution Date over (b) the sum of
the aggregate Certificate Principal Balances
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of the Class A Certificates, the Mezzanine Certificates and the Class P
Certificates as of such Distribution Date (after taking into account the payment
of the amounts described in clauses (b)(i) through (iv) of the definition of
Principal Distribution Amount on such Distribution Date).
"Overcollateralization Deficiency Amount": With respect to any
Distribution Date, the excess, if any, of (a) the Required Overcollateralized
Amount applicable to such Distribution Date over (b) the Overcollateralized
Amount applicable to such Distribution Date prior to taking into account the
payment of any Overcollateralization Increase Amount on such Distribution Date.
"Overcollateralization Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Overcollateralization Deficiency Amount
as of such Distribution Date (after taking into account the payment of the
Principal Distribution Amount on such Distribution Date, exclusive of the
payment of any Overcollateralization Increase Amount) and (b) the amount of
Accrued Certificate Interest payable on the Class CE Certificates on such
Distribution Date as reduced by Realized Losses allocated thereto with respect
to such Distribution Date pursuant to Section 4.04.
"Overcollateralization Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralized Amount and (b) the sum of the amounts available for
distribution specified in clauses (b)(i) through (iii) of the definition of
Principal Distribution Amount.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Residual Certificates
and the first Distribution Date and with respect to the Class A Certificates and
the Mezzanine Certificates and any Distribution Date, a rate per annum equal to
the lesser of (i) the related One-Month
LIBOR
Pass-Through Rate for such Distribution Date and (ii) the Net WAC Pass-Through
Rate for such Distribution Date. With respect to the Class CE Certificates and
any Distribution Date, a rate per annum equal to the percentage equivalent of a
fraction, the numerator of which is the sum of the amounts calculated pursuant
to clauses (i) through (vii) below, and the denominator of which is the
Uncertificated Balance of the REMIC II Regular Interests (other than the
Uncertificated Balance of REMIC II Regular Interest II-LTP). For purposes of
calculating the Pass-Through Rate for the Class CE Certificates, the numerator
is equal to the sum of the following components:
(i) the REMIC II Remittance Rate for REMIC II Regular Interest
II-LT1 minus two (2) times the weighted average of the REMIC II
Remittance Rates for REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5 and REMIC II Regular Interest II-LT6, with the rate on
REMIC II Regular Interest II-LT6 equal to zero for the purpose of this
calculation, applied to an Uncertificated Notional Amount equal to the
Uncertificated Balance of REMIC II Regular Interest II-LT1;
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(ii) the weighted average of the REMIC II Remittance Rates for
REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3,
REMIC II Regular Interest II-LT4 and REMIC II Regular Interest II-LT5
minus two (2) times the weighted average of the REMIC II Remittance
Rates for REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest
II-LT5 and REMIC II Regular Interest II-LT6, with the rate on REMIC II
Regular Interest II-LT6 equal to zero for the purpose of this
calculation, applied to an Uncertificated Notional Amount equal to the
Uncertificated Balance of REMIC II Regular Interest II- LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4 and REMIC II
Regular Interest II-LT5;
(iii) the REMIC II Remittance Rate for REMIC II Regular
Interest II-LT6 minus two (2) times the weighted average of the REMIC
II Remittance Rates for REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II
Regular Interest II-LT5 and REMIC II Regular Interest II-LT6, with the
rate on REMIC II Regular Interest II-LT6 equal to zero for the purpose
of this calculation, applied to an Uncertificated Notional Amount equal
to the Uncertificated Balance of REMIC II Regular Interest II-LT6;
(iv) 100% of the interest on REMIC II Regular Interest
II-LT2S;
(v) 100% of the interest on REMIC II Regular Interest II-LT3S;
(iv) 100% of the interest on REMIC II Regular Interest
II-LT4S; and
(vii) 100% of the interest on REMIC II Regular Interest
II-LT5S.
"Percentage Interest": With respect to any Class of
Certificates, the undivided percentage ownership in such Class evidenced by such
Certificate, expressed as a percentage, the numerator of which is the initial
Certificate Principal Balance represented by such Certificate and the
denominator of which is the aggregate initial Certificate Principal Balance of
all of the Certificates of such Class. The Class A Certificates and the
Mezzanine Certificates are issuable only in minimum Percentage Interests
corresponding to minimum initial Certificate Principal Balances of $10,000 and
integral multiples of $1.00 in excess thereof. The Class CE Certificates are
issuable only in minimum Percentage Interests corresponding to minimum initial
Certificate Principal Balances of $10,000 and integral multiples of $1.00 in
excess thereof; provided, however, that a single Certificate of such Class of
Certificates may be issued having a Percentage Interest corresponding to the
remainder of the aggregate initial Certificate Principal Balance of such Class
or to an otherwise authorized denomination for such Class plus such remainder.
With respect to any Class P Certificate or Residual Certificate, the undivided
percentage ownership in such Class evidenced by such Certificate, as set forth
on the face of such Certificate. The Class P Certificates and the Residual
Certificates are issuable only in Percentage Interests corresponding to initial
Certificate Principal Balances of $20 and integral multiples thereof.
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"Periodic Rate Cap": With respect to each Mortgage Loan and
any Adjustment Date therefor, the fixed percentage set forth in the related
Mortgage Note, which is the maximum amount by which the Mortgage Rate for such
Mortgage Loan may increase or decrease (without regard to the Maximum Mortgage
Rate or the Minimum Mortgage Rate) on such Adjustment Date from the Mortgage
Rate in effect immediately prior to such Adjustment Date.
"Permitted Investments": Any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
regardless of whether issued by the Depositor, the Master Servicer, the Trustee
or any of their respective Affiliates:
(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States;
(ii) demand and time deposits in, certificates of
deposit of, or bankers' acceptances issued by, any Depository
Institution;
(iii) repurchase obligations with respect to any
security described in clause (i) above entered into with a Depository
Institution (acting as principal);
(iv) securities bearing interest or sold at a
discount that are issued by any corporation incorporated under the laws
of the United States of America or any state thereof and that are rated
by each Rating Agency that rates such securities in its highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing for such investment;
(v) commercial paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than 30
days after the date of acquisition thereof) that is rated by each
Rating Agency that rates such securities in its highest short-term
unsecured debt rating available at the time of such investment;
(vi) units of money market funds that have been rated
"AAA" by Fitch (if rated by Fitch) and "AAAm" by S&P; and
(viii) if previously confirmed in writing to the
Trustee, any other demand, money market or time deposit, or any other
obligation, security or investment, as may be acceptable to the Rating
Agencies as a permitted investment of funds backing securities having
ratings equivalent to its highest initial rating of the Class A
Certificates;
provided, however, that no instrument described hereunder shall evidence either
the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the
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interest and principal payments with respect to such instrument provide a yield
to maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations.
"Permitted Transferee": Any Transferee of a Residual
Certificate other than a Disqualified Organization or Non-United States Person.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"P&I Advance": As to any Mortgage Loan or REO Property, any
advance made by the Master Servicer in respect of any Distribution Date pursuant
to Section 4.03.
"Plan": Any employee benefit plan or certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and bank collective investment funds and insurance company general
or separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA and Section 4975 of the Code.
"Pre-Funding Account": The account established and maintained
pursuant to Section 4.07, as defined therein.
"Prepayment Assumption": A prepayment rate for the Mortgage
Loans of ______% CPR. The Prepayment Assumption is used solely for determining
the accrual of original issue discount on the Certificates for federal income
tax purposes. A CPR (or Constant Prepayment Rate) represents an annualized
constant assumed rate of prepayment each month of a pool of mortgage loans
relative to its outstanding principal balance for the life of such pool.
"Prepayment Charge": With respect to any Prepayment Period,
any prepayment premium, penalty or charge payable by a Mortgagor in connection
with any Principal Prepayment on a Mortgage Loan pursuant to the terms of the
related Mortgage Note.
"Prepayment Charge Schedule": As of any date, the list of
Prepayment Charges included in REMIC I on such date, attached hereto as Schedule
2 (including the Prepayment Charge Summary attached thereto) as supplemented by
each schedule of Subsequent Mortgage Loans which by their terms have related
Prepayment Charges. The Prepayment Charge Schedule shall set forth the following
information with respect to each Prepayment Charge:
(i) the Mortgage Loan identifying number;
(ii) a code indicating the type of Prepayment Charge;
(iii) the state of origination of the related Mortgage Loan;
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(iv) the date on which the first monthly payment was due on the
related Mortgage Loan;
(v) the term of the related Mortgage Loan; and
(vi) the principal balance of the related Mortgage Loan as of
the Cut-off Date (or Subsequent Cut-off Date, with respect
to a Subsequent Mortgage Loan).
The Prepayment Charge Schedule shall be amended from time to
time by the Depositor in accordance with the provisions of this Agreement.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was during the related Prepayment
Period the subject of a Principal Prepayment in full or in part that was applied
by the Master Servicer to reduce the outstanding principal balance of such loan
on a date preceding the Due Date in the succeeding Prepayment Period, an amount
equal to interest at the applicable Net Mortgage Rate on the amount of such
Principal Prepayment for the number of days commencing on the date on which the
prepayment is applied and ending on the last day of the related Prepayment
Period. The obligations of the Master Servicer in respect of any Prepayment
Interest Shortfall are set forth in Section 3.24.
"Prepayment Period": With respect to any Distribution Date,
the calendar month preceding the calendar month in which such Distribution Date
occurs.
"Principal Distribution Amount": With respect to any
Distribution Date, the lesser of:
(a) the excess of the Available Distribution Amount over
the amount payable on the Class A Certificates and
the Mezzanine Certificates pursuant to Section
4.01(a)(2); and
(b) the sum of:
(i) the principal portion of each Monthly Payment on
the Mortgage Loans due during the related Due Period,
whether or not received on or prior to the related
Determination Date;
(ii) the Stated Principal Balance of any Mortgage
Loan that was purchased during the related Prepayment
Period pursuant to or as contemplated by Section
2.03, Section 3.16(c) or Section 9.01 and the amount
of any shortfall deposited in the Collection Account
in connection with the substitution of a Deleted
Mortgage Loan pursuant to Section 2.03 during the
related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments, Insurance Proceeds, Liquidation
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Proceeds and REO Principal Amortization) received
during the related Prepayment Period, net of any
portion thereof that represents a recovery of
principal for which an advance was made by the Master
Servicer pursuant to Section 4.03 in respect of a
preceding Distribution Date, and with respect to the
Distribution Date immediately following the end of
the Funding Period, any amounts in the Pre-Funding
Account after giving effect to the purchase of any
Subsequent Mortgage Loans;
(iv) the principal portion of any Realized Losses
incurred or deemed to have been incurred on the
Mortgage Loans in the calendar month preceding such
Distribution Date; and
(v) the amount of any Overcollateralization Increase
Amount for such Distribution Date;
minus:
(vi) the amount of any Overcollateralization
Reduction Amount for such Distribution Date.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing the full
amount of scheduled interest due on any Due Date in any month or months
subsequent to the month of prepayment.
"PTCE": A Prohibited Transaction Class Exemption.
"Purchase Price": With respect to any Mortgage Loan or REO
Property to be purchased pursuant to or as contemplated by Section 2.03, Section
3.16(c) or Section 9.01, and as confirmed by an Officers' Certificate from the
Master Servicer to the Trustee, an amount equal to the sum of (i) 100% of the
Stated Principal Balance thereof as of the date of purchase (or such other price
as provided in Section 9.01), (ii) in the case of (x) a Mortgage Loan, accrued
interest on such Stated Principal Balance at the applicable Net Mortgage Rate in
effect from time to time from the Due Date as to which interest was last covered
by a payment by the Mortgagor or an advance by the Master Servicer, which
payment or advance had as of the date of purchase been distributed pursuant to
Section 4.01, through the end of the calendar month in which the purchase is to
be effected and (y) an REO Property, the sum of (1) accrued interest on such
Stated Principal Balance at the applicable Net Mortgage Rate in effect from time
to time from the Due Date as to which interest was last covered by a payment by
the Mortgagor or an advance by the Master Servicer through the end of the
calendar month immediately preceding the calendar month in which such REO
Property was acquired, plus (2) REO Imputed Interest for such REO Property for
each calendar month commencing with the calendar month in which such REO
Property was acquired and ending with the calendar month in which such purchase
is to be effected, net of the total of all net rental income, Insurance
Proceeds, Liquidation Proceeds and P&I Advances that as of the date of purchase
had been distributed as or to cover REO Imputed Interest pursuant to
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Section 4.01, (iii) any unreimbursed Servicing Advances and P&I Advances
(including Nonrecoverable P&I Advances and Nonrecoverable Servicing Advances)
and any unpaid Servicing Fees allocable to such Mortgage Loan or REO Property,
(iv) any amounts previously withdrawn from the Collection Account in respect of
such Mortgage Loan or REO Property pursuant to Sections 3.11(a)(ix) and 3.16(b),
and (v) in the case of a Mortgage Loan required to be purchased pursuant to
Section 2.03, expenses reasonably incurred or to be incurred by the Master
Servicer or the Trustee in respect of the breach or defect giving rise to the
purchase obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan
substituted for a Deleted Mortgage Loan pursuant to the terms of this Agreement
which must, on the date of such substitution, (i) have an outstanding principal
balance, after application of all scheduled payments of principal and interest
due during or prior to the month of substitution, not in excess of the Scheduled
Principal Balance of the Deleted Mortgage Loan as of the Due Date in the
calendar month during which the substitution occurs, (ii) have a Mortgage Rate
not less than (and not more than one percentage point in excess of) the Mortgage
Rate of the Deleted Mortgage Loan, (iii) have a Maximum Mortgage Rate not less
than the Maximum Mortgage Rate on the Deleted Mortgage Loan, (iv) have a Minimum
Mortgage Rate not less than the Minimum Mortgage Rate of the Deleted Mortgage
Loan, (v) have a Gross Margin equal to the Gross Margin of the Deleted Mortgage
Loan, (vi) have a next Adjustment Date not more than two months later than the
next Adjustment Date on the Deleted Mortgage Loan, (vii) have a remaining term
to maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan, (viii) have the same Due Date as the Due Date on the
Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date, (x) have a risk grading determined by the Seller
at least equal to the risk grading assigned on the Deleted Mortgage Loan and
(xi) conform to each representation and warranty set forth in Section 6 of the
Mortgage Loan Purchase Agreement applicable to the Deleted Mortgage Loan. In the
event that one or more mortgage loans are substituted for one or more Deleted
Mortgage Loans, the amounts described in clause (i) hereof shall be determined
on the basis of aggregate principal balances, the Mortgage Rates described in
clause (ii) hereof shall be determined on the basis of weighted average Mortgage
Rates, the terms described in clause (vii) hereof shall be determined on the
basis of weighted average remaining term to maturity, the Loan-to-Value Ratios
described in clause (ix) hereof shall be satisfied as to each such mortgage
loan, the risk gradings described in clause (x) hereof shall be satisfied as to
each such mortgage loan and, except to the extent otherwise provided in this
sentence, the representations and warranties described in clause (xi) hereof
must be satisfied as to each Qualified Substitute Mortgage Loan or in the
aggregate, as the case may be.
"Rate/Term Refinancing": A Refinanced Mortgage Loan, the
proceeds of which are not more than a nominal amount in excess of the existing
first mortgage loan and any subordinate mortgage loan on the related Mortgaged
Property and related closing costs, and were used exclusively (except for such
nominal amount) to satisfy the then existing first mortgage loan and any
subordinate mortgage loan of the Mortgagor on the related Mortgaged Property and
to pay related closing costs.
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"Rating Agency or Rating Agencies": Fitch and S&P or their
successors. If such agencies or their successors are no longer in existence,
"Rating Agencies" shall be such nationally recognized statistical rating
agencies, or other comparable Persons, designated by the Depositor, notice of
which designation shall be given to the Trustee and the Master Servicer.
"Realized Loss": With respect to each Mortgage Loan as to
which a Final Recovery Determination has been made, an amount (not less than
zero) equal to (i) the unpaid principal balance of such Mortgage Loan as of the
commencement of the calendar month in which the Final Recovery Determination was
made, plus (ii) accrued interest from the Due Date as to which interest was last
paid by the Mortgagor through the end of the calendar month in which such Final
Recovery Determination was made, calculated in the case of each calendar month
during such period (A) at an annual rate equal to the annual rate at which
interest was then accruing on such Mortgage Loan and (B) on a principal amount
equal to the Stated Principal Balance of such Mortgage Loan as of the close of
business on the Distribution Date during such calendar month, plus (iii) any
amounts previously withdrawn from the Collection Account in respect of such
Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (iv)
the proceeds, if any, received in respect of such Mortgage Loan during the
calendar month in which such Final Recovery Determination was made, net of
amounts that are payable therefrom to the Master Servicer with respect to such
Mortgage Loan pursuant to Section 3.11(a)(iii).
With respect to any REO Property as to which a Final Recovery
Determination has been made, an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of REMIC I, plus (ii) accrued
interest from the Due Date as to which interest was last paid by the Mortgagor
in respect of the related Mortgage Loan through the end of the calendar month
immediately preceding the calendar month in which such REO Property was
acquired, calculated in the case of each calendar month during such period (A)
at an annual rate equal to the annual rate at which interest was then accruing
on the related Mortgage Loan and (B) on a principal amount equal to the Stated
Principal Balance of the related Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such Final Recovery Determination was made, plus (iv)
any amounts previously withdrawn from the Collection Account in respect of the
related Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus
(v) the aggregate of all P&I Advances and Servicing Advances (in the case of
Servicing Advances, without duplication of amounts netted out of the rental
income, Insurance Proceeds and Liquidation Proceeds described in clause (vi)
below) made by the Master Servicer in respect of such REO Property or the
related Mortgage Loan for which the Master Servicer has been or, in connection
with such Final Recovery Determination, will be reimbursed pursuant to Section
3.23 out of rental income, Insurance Proceeds and Liquidation Proceeds received
in respect of such REO Property, minus (vi) the total of all net rental income,
Insurance Proceeds and Liquidation Proceeds received in respect of such REO
Property that has been, or in connection with such Final Recovery Determination,
will be transferred to the Distribution Account pursuant to Section 3.23.
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With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation.
With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the portion, if any, of the reduction in
each affected Monthly Payment attributable to a reduction in the Mortgage Rate
imposed by a court of competent jurisdiction. Each such Realized Loss shall be
deemed to have been incurred on the Due Date for each affected
Monthly Payment.
"Record Date": With respect to each Distribution Date and any
Book-Entry Certificate, the Business Day immediately preceding such Distribution
Date. With respect to each Distribution Date and any other Class of
Certificates, including any Definitive Certificates, the last Business Day of
the month immediately preceding the month in which such Distribution Date
occurs.
"Reference Banks": ________________________________________
and __________________________ and their successors in interest; provided,
however, that if any of the foregoing banks are not suitable to serve as a
Reference Bank, then any leading banks selected by the Trustee which are engaged
in transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London, (ii) not controlling, under
the control of or under common control with the Depositor or any Affiliate
thereof and (iii) which have been designated as such by the Trustee.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of
which were not used to purchase the related Mortgaged Property.
"Regular Certificate": Any Class A Certificate, Mezzanine
Certificate, Class CE Certificate or Class P Certificate.
"Regular Interest": A "regular interest" in a REMIC within the
meaning of Section 860G(a)(1) of the Code.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Relief Act Interest Shortfall": With respect to any
Distribution Date and any Mortgage Loan, any reduction in the amount of interest
collectible on such Mortgage Loan for the most recently ended calendar month as
a result of the application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC I": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
with respect to which a REMIC election
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is to be made, consisting of: (i) such Mortgage Loans and Prepayment Charges as
from time to time are subject to this Agreement, together with the Mortgage
Files relating thereto, and together with all collections thereon and proceeds
thereof; (ii) any REO Property, together with all collections thereon and
proceeds thereof; (iii) the Trustee's rights with respect to the Mortgage Loans
under all insurance policies required to be maintained pursuant to this
Agreement and any proceeds thereof; (iv) the Depositor's rights under the
Mortgage Loan Purchase Agreement (including any security interest created
thereby); (v) the Collection Account, the Distribution Account and any REO
Account, and such assets that are deposited therein from time to time and any
investments thereof, together with any and all income, proceeds and payments
with respect thereto. Notwithstanding the foregoing, however, REMIC I
specifically excludes the Pre-Funding Account, the Interest Coverage Account and
all payments and other collections of principal and interest due on the Mortgage
Loans on or before the Cut-off Date and all Prepayment Charges payable in
connection with Principal Prepayments made before the Cut-off Date.
"REMIC I Interest Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to (a) the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) the REMIC I Remittance Rate for REMIC I Regular Interest
I-LT1 minus two (2) times the weighted average of the REMIC II Remittance Rates
for REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I
Regular Interest I-LT4, REMIC I Regular Interest I-LT5 and REMIC I Regular
Interest I-LT6, with the rate on REMIC I Regular Interest I-LT6 equal to zero
for purposes of this calculation, divided by (b) 12.
"REMIC I Overcollateralized Amount": With respect to any date
of determination, (i) 1% of the aggregate Uncertificated Balances of the REMIC I
Regular Interests minus (ii) the Uncertificated Balances of REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4
and REMIC I Regular Interest I-LT5, in each case as of such date of
determination.
"REMIC I Principal Loss Allocation Amount": With respect to
any Distribution Date, an amount equal to the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) 1 minus a fraction, the numerator of which is two times the
Uncertificated Balance of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4 and REMIC I Regular Interest
I-LT5 and the denominator of which is the sum of the Uncertificated Balances of
REMIC I Regular Interest I- LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5 and REMIC I Regular Interest
I-LT6.
"REMIC I Regular Interest": Any of the seven separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a "regular interest" in REMIC I. Each REMIC I Regular Interest
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC I Regular Interests are set forth in the
Preliminary Statement hereto.
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"REMIC I Regular Interest I-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT1
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT2
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT3
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT4
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT5
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT6
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LTP
shall be entitled to any Prepayment Charges collected by the
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Master Servicer and to a distribution of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Remittance Rate": With respect to each REMIC I
Regular Interest, the weighted average of the Expense Adjusted Mortgage Rates on
the then outstanding Mortgage Loans and REO Properties.
"REMIC I Required Overcollateralized Amount": 1% of the
Required Overcollateralization Amount.
"REMIC II": The segregated pool of assets consisting of all of
the REMIC I Regular Interests conveyed in trust to the Trustee for the benefit
of REMIC III, as holder of the REMIC II Regular Interests, and the Class R-II
Certificateholders pursuant to Section 2.07, and all amounts deposited therein,
with respect to which a separate REMIC election is to be made.
"REMIC II Regular Interest": Any of the eleven separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a "regular interest" in REMIC II. Each REMIC II Regular Interest
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC II Regular Interests are set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT1
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
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"REMIC II Regular Interest II-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LTP
shall be entitled to any Prepayment Charges collected by the Master Servicer and
to a distribution of principal, subject to the terms and conditions hereof, in
an aggregate amount equal to its initial Uncertificated Balance as set forth in
the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT3S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT4S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT5S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest
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in REMIC II. REMIC II Regular Interest II-LT5S shall accrue interest at the
related REMIC II Remittance Rate in effect from time to time on its related
Uncertificated Notional Amount.
"REMIC II Remittance Rate": With respect to REMIC II Regular
Interest II-LT1 and REMIC II Regular Interest II-LT6, the weighted average of
the Expense Adjusted Mortgage Rates on the then outstanding Mortgage Loans and
REO Properties. With respect to REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4 and REMIC II Regular
Interest II-LT5, the lesser of (i) the related One-Month LIBOR Pass- Through
Rate (based on the actual number of days elapsed in the applicable Interest
Accrual Period and a 360-day year) and (ii) the Net WAC Pass-Through Rate,
multiplied by the actual number of days elapsed in the related Interest Accrual
Period divided by 360. With respect to REMIC II Regular Interest II-LT2S, REMIC
II Regular Interest II-LT3S, REMIC II Regular Interest II-LT4S and REMIC II
Regular Interest II-LT5S, a rate per annum equal to excess of the REMIC I
Remittance Rate for the related Uncertificated Corresponding Component over the
REMIC II Remittance Rate for REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II- LT3, REMIC II Regular Interest II-LT4 and REMIC II Regular Interest
II-LT5, respectively.
"REMIC III": The segregated pool of assets consisting of all
of the REMIC II Regular Interests conveyed in trust to the Trustee for the
benefit of the REMIC III Certificateholders pursuant to Section 2.09, and all
amounts deposited therein, with respect to which a separate REMIC election is to
be made.
"REMIC III Certificate": Any Regular Certificate or Class
R-III Certificate.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related provisions, and proposed, temporary
and final regulations and published rulings, notices and announcements
promulgated thereunder, as the foregoing may be in effect from time to time.
"Remittance Report": A report in form and substance acceptable
to the Trustee on a magnetic disk or tape prepared by the Master Servicer
pursuant to Section 4.03 with such additions, deletions and modifications as
agreed to by the Trustee and the Master Servicer.
"Rents from Real Property": With respect to any REO Property,
gross income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
"REO Account": The account or accounts maintained, or caused
to be maintained, by the Master Servicer in respect of an REO Property pursuant
to Section 3.23.
"REO Disposition": The sale or other disposition of an REO
Property on behalf of REMIC I.
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"REO Imputed Interest": As to any REO Property, for any
calendar month during which such REO Property was at any time part of REMIC I,
one month's interest at the applicable Net Mortgage Rate on the Stated Principal
Balance of such REO Property (or, in the case of the first such calendar month,
of the related Mortgage Loan, if appropriate) as of the close of business on the
Distribution Date in such calendar month.
"REO Principal Amortization": With respect to any REO
Property, for any calendar month, the excess, if any, of (a) the aggregate of
all amounts received in respect of such REO Property during such calendar month,
whether in the form of rental income, sale proceeds (including, without
limitation, that portion of the Termination Price paid in connection with a
purchase of all of the Mortgage Loans and REO Properties pursuant to Section
9.01 that is allocable to such REO Property) or otherwise, net of any portion of
such amounts (i) payable pursuant to Section 3.23(c) in respect of the proper
operation, management and maintenance of such REO Property or (ii) payable or
reimbursable to the Master Servicer pursuant to Section 3.23(d) for unpaid
Servicing Fees in respect of the related Mortgage Loan and unreimbursed
Servicing Advances and P&I Advances in respect of such REO Property or the
related Mortgage Loan, over (b) the REO Imputed Interest in respect of such REO
Property for such calendar month.
"REO Property": A Mortgaged Property acquired by the Master
Servicer on behalf of REMIC I through foreclosure or deed-in-lieu of
foreclosure, as described in Section 3.23.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibit E-1 or Exhibit E-2 attached hereto.
"Required Overcollateralized Amount": With respect to any
Distribution Date (i) prior to the Stepdown Date, $____________, (ii) on or
after the Stepdown Date provided a Trigger Event is not in effect, the greater
of (x) ______% of the aggregate Stated Principal Balance of the Mortgage Loans
as of the last day of the related Due Period and (y) $________________, and
(iii) on or after the Stepdown Date and a Trigger Event is in effect, the
Required Overcollateralized Amount for the immediately preceding Distribution
Date.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/16%) of the one-month U.S. dollar lending rates which New York
City banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residential Dwelling": Any one of the following: (i) an
attached, detached or semi-detached one-family dwelling, (ii) an attached,
detached or semi-detached two- to four-family dwelling, (iii) a one-family
dwelling unit in a Fannie Mae eligible condominium project, or (iv) an attached,
detached or semi-detached one-family dwelling in a planned unit development,
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none of which is a co-operative, mobile or manufactured home (as defined in 42
United States Code, Section 5402(6)).
"Residual Certificate": Any one of the Class R-I Certificates,
Class R-II Certificates or Class R-III Certificates.
"Residual Interest": The sole class of "residual interests" in
a REMIC within the meaning of Section 860G(a)(2) of the Code.
"Responsible Officer": When used with respect to the Trustee,
the Chairman or Vice Chairman of the Board of Directors or Trustees, the
Chairman or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any vice president, any assistant vice president, the Secretary, any
assistant secretary, the Treasurer, any assistant treasurer, the Cashier, any
assistant cashier, any trust officer or assistant trust officer, the Controller
and any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and, with respect to a particular matter, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Scheduled Principal Balance": With respect to any Mortgage
Loan: (a) as of the Cut-off Date (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan), the outstanding principal balance of such Mortgage
Loan as of such date, net of the principal portion of all unpaid Monthly
Payments, if any, due on or before such date; (b) as of any Due Date subsequent
to the Cut-off Date (or Subsequent Cut-off Date, as applicable) up to and
including the Due Date in the calendar month in which a Liquidation Event occurs
with respect to such Mortgage Loan, the Scheduled Principal Balance of such
Mortgage Loan as of the Cut-off Date (or Subsequent Cut-off Date, as
applicable), minus the sum of (i) the principal portion of each Monthly Payment
due on or before such Due Date but subsequent to the Cut-off Date (or Subsequent
Cut-off Date, as applicable), whether or not received, (ii) all Principal
Prepayments received before such Due Date but after the Cut-off Date (or
Subsequent Cut-off Date, as applicable), (iii) the principal portion of all
Liquidation Proceeds and Insurance Proceeds received before such Due Date but
after the Cut-off Date (or Subsequent Cut-off Date, as applicable), net of any
portion thereof that represents principal due (without regard to any
acceleration of payments under the related Mortgage and Mortgage Note) on a Due
Date occurring on or before the date on which such proceeds were received and
(iv) any Realized Loss incurred with respect thereto as a result of a Deficient
Valuation occurring before such Due Date, but only to the extent such Realized
Loss represents a reduction in the portion of principal of such Mortgage Loan
not yet due (without regard to any acceleration of payments under the related
Mortgage and Mortgage Note) as of the date of such Deficient Valuation; and (c)
as of any Due Date subsequent to the occurrence of a Liquidation Event with
respect to such Mortgage Loan, zero. With respect to any REO Property: (a) as of
any Due Date subsequent to the date of its acquisition on behalf of the Trust
Fund up to and including the Due Date in the calendar month in which a
Liquidation Event occurs with respect to such REO Property, an amount (not less
than zero) equal to the Scheduled Principal Balance of the related Mortgage Loan
as of the Due Date in the calendar month in which such REO Property was
acquired, minus the aggregate amount of REO Principal Amortization,
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if any, in respect of such REO Property for all previously ended calendar
months; and (b) as of any Due Date subsequent to the occurrence of a Liquidation
Event with respect to such REO Property, zero.
"Seller":_______________________________ or its successor in
interest, in its capacity as seller under the Mortgage Loan Purchase Agreement.
"Senior Interest Distribution Amount": With respect to any
Distribution Date, an amount equal to the sum of (i) the Interest Distribution
Amounts for such Distribution Date for the Class A Certificates and, on the
first Distribution Date, the Residual Certificates and (ii) the Interest Carry
Forward Amount with respect to the Class A Certificates.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by the Master Servicer in connection with a default,
delinquency or other unanticipated event by the Master Servicer in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
in respect of a particular Mortgage Loan, (iii) the management (including
reasonable fees in connection therewith) and liquidation of any REO Property,
and (iv) the performance of its obligations under Section 3.01, Section 3.09,
Section 3.14, Section 3.16 and Section 3.23. The Master Servicer shall not be
required to make any Servicing Advance in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the Master Servicer, would
not be ultimately recoverable from related Insurance Proceeds or Liquidation
Proceeds on such Mortgage Loan or REO Property as provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for
any calendar month, an amount equal to one month's interest (or in the event of
any payment of interest which accompanies a Principal Prepayment in full or in
part made by the Mortgagor during such calendar month, interest for the number
of days covered by such payment of interest) at the applicable Servicing Fee
Rate on the same principal amount on which interest on such Mortgage Loan
accrues for such calendar month. A portion of such Servicing Fee may be retained
by any Sub-Servicer as its servicing compensation.
"Servicing Fee Rate":_______% per annum.
"Servicing Officer": Any officer of the Master Servicer
involved in, or responsible for, the administration and servicing of Mortgage
Loans, whose name and specimen signature appear on a list of Servicing Officers
furnished by the Master Servicer to the Trustee and the Depositor on the Closing
Date, as such list may from time to time be amended.
"Single Certificate": With respect to any Class of
Certificates (other than the Class P Certificates and the Residual
Certificates), a hypothetical Certificate of such Class evidencing
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a Percentage Interest for such Class corresponding to an initial Certificate
Principal Balance or Notional Amount of $1,000. With respect to the Class P
Certificates and the Residual Certificates, a hypothetical Certificate of such
Class evidencing a 100% Percentage Interest in such Class.
"Special Hazard Amount": As of any Distribution Date, an
amount equal to $_____________, minus the sum of (i) the aggregate amount of
Special Hazard Losses on the Mortgage Loans allocated to the Mezzanine
Certificates and the Class CE Certificates in accordance with Section 4.04 and
(ii) the Adjustment Amount (as defined below) as most recently calculated. For
each anniversary of the Cut-off Date, the Adjustment Amount shall be equal to
the amount, if any, by which the amount calculated in accordance with the
preceding sentence (without giving effect to the deduction of the Adjustment
Amount for such anniversary) exceeds the greatest of (i) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on the Distribution Date immediately preceding such
anniversary, (ii) the product of 1.00% multiplied by the outstanding principal
balance of all Mortgage Loans on the Distribution Date immediately preceding
such anniversary and (iii) the aggregate outstanding principal balance (as of
the immediately preceding Distribution Date) of the Mortgage Loans in any
five-digit California zip code area with the largest amount of Mortgage Loans by
aggregate principal balance as of such anniversary.
"Special Hazard Loss": Any Realized Loss or portion thereof
not in excess of the lesser of the cost of repair or replacement of a Mortgaged
Property suffered by such Mortgaged Property by reason of damage caused by
certain hazards (including earthquakes, mudflows and, to a limited extent,
floods) not insured against under the hazard insurance policies or fire or flood
insurance policies required to be maintained in respect of such Mortgaged
Property pursuant to Section 3.14, or by reason of the application of any
co-insurance provision. Special Hazard Losses shall not include any
Extraordinary Loss or any of the following:
(i) wear and tear, deterioration, rust or corrosion,
mold, wet or dry rot; inherent vice or latent defect;
animals, birds, vermin, insects;
(ii) smog, smoke, vapor, liquid or dust discharge from
agricultural or industrial operations; pollution;
contamination;
(iii) settling, subsidence, cracking, shrinkage, bulging or
expansion of pavements, foundations, walls, floors,
roofs or ceilings; and
(iv) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a
part thereof ensues and then only for the ensuing
loss.
["S&P": Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or its successor in interest.]
"Startup Day": With respect to each of REMIC I, REMIC II and
REMIC III, the day designated as such pursuant to Section 10.01(b) hereof.
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"Stated Principal Balance": With respect to any Mortgage Loan:
(a) as of any date of determination up to but not including the Distribution
Date on which the proceeds, if any, of a Liquidation Event with respect to such
Mortgage Loan would be distributed, the Scheduled Principal Balance of such
Mortgage Loan as of the Cut-off Date (or Subsequent Cut-off Date, with respect
to a Subsequent Mortgage Loan), as shown in the Mortgage Loan Schedule, minus
the sum of (i) the principal portion of each Monthly Payment due on a Due Date
subsequent to the Cut-off Date (or Subsequent Cut-off Date, as applicable), to
the extent received from the Mortgagor or advanced by the Master Servicer and
distributed pursuant to Section 4.01 on or before such date of determination,
(ii) all Principal Prepayments received after the Cut-off Date (or Subsequent
Cut-off Date, as applicable), to the extent distributed pursuant to Section 4.01
on or before such date of determination, (iii) all Liquidation Proceeds and
Insurance Proceeds applied by the Master Servicer as recoveries of principal in
accordance with the provisions of Section 3.16, to the extent distributed
pursuant to Section 4.01 on or before such date of determination, and (iv) any
Realized Loss incurred with respect thereto as a result of a Deficient Valuation
made during or prior to the Prepayment Period for the most recent Distribution
Date coinciding with or preceding such date of determination; and (b) as of any
date of determination coinciding with or subsequent to the Distribution Date on
which the proceeds, if any, of a Liquidation Event with respect to such Mortgage
Loan would be distributed, zero. With respect to any REO Property: (a) as of any
date of determination up to but not including the Distribution Date on which the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be distributed, an amount (not less than zero) equal to the Stated Principal
Balance of the related Mortgage Loan as of the date on which such REO Property
was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was
acquired before the Distribution Date in any calendar month, the principal
portion of the Monthly Payment due on the Due Date in the calendar month of
acquisition, to the extent advanced by the Master Servicer and distributed
pursuant to Section 4.01 on or before such date of determination, and (ii) the
aggregate amount of REO Principal Amortization in respect of such REO Property
for all previously ended calendar months, to the extent distributed pursuant to
Section 4.01 on or before such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such REO Property
would be distributed, zero.
"Stayed Funds": If the Master Servicer is the subject of a
proceeding under the federal Bankruptcy Code and the making of a Remittance (as
defined in Section 7.02(b)) is prohibited by Section 362 of the federal
Bankruptcy Code, funds that are in the custody of the Master Servicer, a trustee
in bankruptcy or a federal bankruptcy court and should have been the
subject of such Remittance absent such prohibition.
"Stepdown Date": The later to occur of (i) the Distribution
Date occurring in _______________ and (ii) the first Distribution Date on which
the Credit Enhancement Percentage (calculated for this purpose only after taking
into account distributions of principal on the Mortgage Loans but prior to any
distribution of the Principal Distribution Amount to the Certificates then
entitled to distributions of principal on such Distribution Date) is equal to or
greater than _________%.
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"Subsequent Cut-off Date": With respect to those Subsequent
Mortgage Loans sold to the Trust Fund pursuant to a Subsequent Transfer
Instrument, the first day of the month in which the related Subsequent Transfer
Date occurs.
"Subsequent Mortgage Loan": A Mortgage Loan sold by the
Depositor to the Trust Fund pursuant to Section 2.11, such Mortgage Loan being
identified on the Mortgage Loan Schedule attached to a Subsequent Transfer
Instrument.
"Subsequent Mortgage Loan Purchase Agreement": The agreement
between the Depositor and the Seller regarding the transfer of the Subsequent
Mortgage Loans by the Seller to the Depositor.
"Subsequent Transfer Date": With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust Fund.
"Subsequent Transfer Instrument": Each Subsequent Transfer
Instrument, dated as of a Subsequent Transfer Date, executed by the Trustee and
the Depositor substantially in the form of Exhibit I, by which Subsequent
Mortgage Loans are sold to the Trust Fund.
"Sub-Servicer": Any Person with which the Master Servicer has
entered into a Sub- Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 and is
otherwise acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract between the
Master Servicer and a Sub-Servicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02.
"Tax Returns": The federal income tax return on Internal
Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Telerate Page 3750": The display designated as page "3750" on
the Dow Jones Telerate Capital Markets Report (or such other page as may replace
page 3750 on that report for the purpose of displaying London interbank offered
rates of major banks).
"Termination Price": As defined in Section 9.01.
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"Terminator": As defined in Section 9.01.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation, or other form of assignment of any Ownership Interest in a
Certificate.
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trigger Event": A Trigger Event has occurred with respect to
a Distribution Date if the Delinquency Percentage exceeds the lesser of (i)
one-half of the Credit Enhancement Percentage or (ii) _________%.
"Trust Fund": Collectively, all of the assets of REMIC I,
REMIC II and REMIC III.
"Trustee": __________________________, a national banking
association, or its successor in interest, or any successor trustee appointed as
herein provided.
"Trustee's Fee": The amount payable to the Trustee on each
Distribution Date pursuant to Section 8.05 as compensation for all services
rendered by it in the execution of the trust hereby created and in the exercise
and performance of any of the powers and duties of the Trustee hereunder, which
amount shall equal one twelfth of the product of (i) the Trustee's Fee Rate,
multiplied by (ii) the aggregate Scheduled Principal Balance of the Mortgage
Loans and any REO Properties and any amount in the Pre-Funding Account as of the
second preceding Due Date (or, in the case of the initial Distribution Date, as
of the Cut-off Date).
"Trustee's Fee Rate": _________% per annum.
"Uncertificated Balance": The amount of any REMIC I Regular
Interest or REMIC II Regular Interest outstanding as of any date of
determination. As of the Closing Date, the Uncertificated Balance of each REMIC
I Regular Interest and each REMIC II Regular Interest shall equal the amount set
forth in the Preliminary Statement hereto as its initial uncertificated balance.
On each Distribution Date, the Uncertificated Balance of each REMIC I Regular
Interest and each REMIC II Regular Interest shall be reduced by all
distributions of principal made on such REMIC I Regular Interest or such REMIC
II Regular Interest, as applicable, on such Distribution Date pursuant to
Section 4.01 and, if and to the extent necessary and appropriate, shall be
further reduced on such Distribution Date by Realized Losses as provided in
Section 4.04. The Uncertificated Balance of each REMIC I Regular Interest and
each REMIC II Regular Interest shall never be less than zero.
"Uncertificated Corresponding Component": With respect to:
REMIC II Regular Interest II-LT1, REMIC I Regular Interest I-LT1; REMIC II
Regular Interest II-LT2 and REMIC
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II Regular Interest II-LT2S, REMIC I Regular Interest I-LT2; REMIC II Regular
Interest II-LT3 and REMIC II Regular Interest II-LT3S, REMIC I Regular Interest
I-LT3; REMIC II Regular Interest II-LT4 and REMIC II Regular Interest II-LT4S,
REMIC I Regular Interest I-LT4; REMIC II Regular Interest II-LT5 and REMIC II
Regular Interest II-LT5S, REMIC I Regular Interest I-LT5; REMIC II Regular
Interest II-LT6, REMIC I Regular Interest I-LT6; and REMIC II Regular Interest
II-LTP, REMIC I Regular Interest I-LTP.
"Uncertificated Interest": With respect to any REMIC I Regular
Interest for any Distribution Date, one month's interest at the REMIC I
Remittance Rate applicable to such REMIC I Regular Interest for such
Distribution Date, accrued on the Uncertificated Balance thereof immediately
prior to such Distribution Date. With respect to any REMIC II Regular Interest
for any Distribution Date, one month's interest at the REMIC II Remittance Rate
applicable to such REMIC II Regular Interest for such Distribution Date, accrued
on the Uncertificated Balance thereof immediately prior to such Distribution
Date. Uncertificated Interest in respect of any REMIC I Regular Interest I-LT1,
REMIC I Regular Interest I-LT6, REMIC II Regular Interest II-LT1 and REMIC II
Regular Interest II-LT6, shall accrue on the basis of a 360-day year consisting
of twelve 30-day months; Uncertificated Interest in respect of REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I- LT4,
REMIC I Regular Interest I-LT5 and REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT2S, REMIC II Regular Interest
II-LT3S, REMIC II Regular Interest II- LT4S and REMIC II Regular Interest
II-LT5S shall accrue on the basis of a 360-day year and the actual number of
days in the applicable Interest Accrual Period. Uncertificated Interest with
respect to each Distribution Date, as to any REMIC I Regular Interest or REMIC
II Regular Interest, shall be reduced by an amount equal to a pro rata portion
of the sum of (a) the aggregate Prepayment Interest Shortfall, if any, for such
Distribution Date to the extent not covered by payments pursuant to Section 3.24
and (b) the aggregate amount of any Relief Act Interest Shortfall, if any, for
such Distribution Date. In addition, Uncertificated Interest with respect to
each Distribution Date, as to any REMIC I Regular Interest or REMIC II Regular
Interest, shall be reduced by Realized Losses, if any, allocated to such REMIC I
Regular Interest or REMIC II Regular Interest pursuant to Section 1.02 and
Section 4.04.
"Uncertificated Notional Amount": With respect to REMIC II
Regular Interest II-LT2S, REMIC II Regular Interest II-LT3S, REMIC II Regular
Interest II-LT4S and REMIC II Regular Interest II-LT5S, the Uncertificated
Balance of REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC
I Regular Interest I-LT4 and REMIC I Regular Interest
I-LT5, respectively.
"Uninsured Cause": Any cause of damage to a Mortgaged Property
such that the complete restoration of such property is not fully reimbursable by
the hazard insurance policies required to be maintained pursuant to Section
3.14.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof
(except, in the case of a partnership, to the extent provided in
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regulations) or an estate whose income is subject to United States federal
income tax regardless of its source, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. To the extent prescribed in regulations by
the Secretary of the Treasury, which have not yet been issued, a trust which was
in existence on August 20, 1996 (other than a trust treated as owned by the
grantor under subpart E of part I of subchapter J of chapter 1 of the Code), and
which was treated as a United States person on August 20, 1996 may elect to
continue to be treated as a United States person notwithstanding the previous
sentence. The term "United States" shall have the meaning set forth in Section
7701 of the Code.
"Value": With respect to any Mortgaged Property, the lesser of
(i) the lesser of (a) the value thereof as determined by an appraisal made for
the originator of the Mortgage Loan at the time of origination of the Mortgage
Loan by an appraiser who met the minimum requirements of Fannie Mae and Freddie
Mac and (b) the value thereof as determined by a review appraisal conducted by
the Seller in accordance with the Seller's underwriting guidelines, and (ii) the
purchase price paid for the related Mortgaged Property by the Mortgagor with the
proceeds of the Mortgage Loan; provided, however, (A) in the case of a
Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely
upon the lesser of (1) the value determined by an appraisal made for the
originator of such Refinanced Mortgage Loan at the time of origination of such
Refinanced Mortgage Loan by an appraiser who met the minimum requirements of
Fannie Mae and Freddie Mac and (2) the value thereof as determined by a review
appraisal conducted by the Seller in accordance with the Seller's underwriting
guidelines, and (B) in the case of a Mortgage Loan originated in connection with
a "lease-option purchase," such value of the Mortgaged Property is based on the
lower of the value determined by an appraisal made for the originator of such
Mortgage Loan at the time of origination or the sale price of such Mortgaged
Property if the "lease option purchase price" was set less than 12 months prior
to origination, and is based on the value determined by an appraisal made for
the originator of such Mortgage Loan at the time of origination if the "lease
option purchase price" was set 12 months or more prior to origination.
"Voting Rights": The portion of the voting rights of all of
the Certificates which is allocated to any Certificate. With respect to any date
of determination, _________% of all Voting Rights will be allocated among the
holders of the Class A Certificates, the Mezzanine Certificates and the Class CE
Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates, ______% of all Voting Rights will be
allocated to the holders of the Class P Certificates and _______% of all Voting
Rights will be allocated among the holders of the Residual Certificates. The
Voting Rights allocated to each Class of Certificate shall be allocated among
Holders of each such Class in accordance with their respective Percentage
Interests as of the most recent Record Date.
SECTION 1.02. Allocation of Certain Interest Shortfalls.
For purposes of calculating the amount of Accrued Certificate
Interest and the amount of the Interest Distribution Amount for the Class A
Certificates, the Mezzanine
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Certificates and the Class CE Certificates for any Distribution Date, (1) the
aggregate amount of any Prepayment Interest Shortfalls (to the extent not
covered by payments by the Master Servicer pursuant to Section 3.24) and any
Relief Act Interest Shortfalls incurred in respect of the Mortgage Loans for any
Distribution Date shall be allocated first, among the Class CE Certificates on a
PRO RATA basis based on, and to the extent of, one month's interest at the then
applicable respective Pass-Through Rate on the respective Notional Amount of
each such Certificate and, thereafter, among the Class A Certificates and the
Mezzanine Certificates on a PRO RATA basis based on, and to the extent of, one
month's interest at the then applicable respective Pass-Through Rate on the
respective Certificate Principal Balance of each such Certificate and (2) the
aggregate amount of any Realized Losses incurred for any Distribution Date shall
be allocated among the Class CE Certificates on a PRO RATA basis based on, and
to the extent of, one month's interest at the then applicable respective
Pass-Through Rate on the respective Notional Amount of each such Certificate.
For purposes of calculating the amount of Uncertificated
Interest for the REMIC I Regular Interests for any Distribution Date, the
aggregate amount of any Prepayment Interest Shortfalls (to the extent not
covered by payments by the Master Servicer pursuant to Section 3.24) and Relief
Act Interest Shortfalls incurred in respect of the Mortgage Loans for any
Distribution Date shall be allocated first, to Uncertificated Interest payable
to REMIC I Regular Interest I-LT1 and REMIC I Regular Interest I-LT6 up to an
aggregate amount equal to the REMIC I Interest Loss Allocation Amount, _______%
and ________%, respectively, and thereafter among REMIC I Regular Interest
I-LT1, REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I
Regular Interest I-LT4, REMIC I Regular Interest I-LT5 and REMIC I Regular
Interest I-LT6 PRO RATA based on, and to the extent of, one month's interest at
the then applicable respective Pass-Through Rate on the respective
Uncertificated Balance of each such REMIC I Regular Interest.
All Prepayment Interest Shortfalls and Relief Act Interest
Shortfalls on the REMIC II Regular Interests shall be allocated by the Trustee
on each Distribution Date among the REMIC II Regular Interests in the proportion
that Prepayment Interest Shortfalls and Relief Act Interest Shortfalls are
allocated to the related Uncertificated Corresponding Component.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of the Mortgage Loans.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee, without recourse, for the benefit of the Certificateholders, all the
right, title and interest of the Depositor, including any security interest
therein for the benefit of the Depositor, in and to the Mortgage Loans
identified on the Mortgage Loan Schedule, the rights of the Depositor under the
Mortgage Loan Purchase Agreement, and all other assets included or to be
included in REMIC I. Such assignment includes all interest and principal
received by the Depositor or the Master Servicer on or with respect to the
Mortgage Loans (other than payments of principal and interest due on such
Mortgage Loans on or before the Cut-off Date).
In connection with such transfer and assignment, the Depositor
does hereby deliver to, and deposit with, the Trustee the following documents or
instruments with respect to each Initial Mortgage Loan so transferred and
assigned, and the Depositor shall, in accordance with Section 2.11, deliver or
cause to be delivered to the Trustee with respect to each Subsequent Mortgage
Loan, the following documents or instruments (with respect to a Mortgage Loan, a
"Mortgage File") :
(i) the original Mortgage Note, endorsed in the
following form: "Pay to the order of ______________________,
as Trustee for the registered holders of New Century Mortgage
Securities, Inc., under the applicable pooling and servicing
agreement, without recourse," with all prior and intervening
endorsements showing a complete chain of endorsement from the
originator to the Person so endorsing to the Trustee;
(ii) the original Mortgage with evidence of recording
thereon, and the original recorded power of attorney, if the
Mortgage was executed pursuant to a power of attorney, with
evidence of recording thereon;
(iii) an original Assignment of the Mortgage executed in
the following form: "________________________, as Trustee for
the registered holders of New Century Mortgage Securities,
Inc., under the applicable pooling and servicing agreement";
(iv) the original recorded Assignment or Assignments of
the Mortgage showing a complete chain of assignment from the
originator to the Person assigning the Mortgage to the Trustee
as contemplated by the immediately preceding clause (iii);
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(v) the original or copies of each assumption,
modification, written assurance or substitution agreement, if
any; and
(vi) the original lender's title insurance policy,
together with all endorsements or riders that were issued with
or subsequent to the issuance of such policy, insuring the
priority of the Mortgage as a first lien on the Mortgaged
Property represented therein as a fee interest vested in the
Mortgagor, or in the event such original title policy is
unavailable, a written commitment or uniform binder or
preliminary report of title issued by the title insurance or
escrow company.
The Trustee, at the expense of the Master Servicer, shall
promptly (within sixty Business Days following the later of the Closing Date (or
Subsequent Transfer Date, with respect to the Subsequent Mortgage Loans) and the
date of receipt by the Trustee of the recording information for a Mortgage, but
in no event later than ninety days following the Closing Date (or Subsequent
Transfer Date, with respect to the Subsequent Mortgage Loans) submit or cause to
be submitted for recording, at no expense to the Trust Fund, the Trustee or the
Depositor, in the appropriate public office for real property records, each
Assignment referred to in Sections 2.01(iii) and (iv) above. In the event that
any such Assignment is lost or returned unrecorded because of a defect therein,
the Master Servicer shall promptly prepare or cause to be prepared a substitute
Assignment or cure or cause to be cured such defect, as the case may be, and
thereafter cause each such Assignment to be duly recorded.
With respect to a maximum of approximately 1.0% of the Initial
Mortgage Loans, by outstanding principal balance of the Initial Mortgage Loans
as of the Cut-off Date, if any original Mortgage Note referred to in Section
2.01(i) above cannot be located, the obligations of the Depositor to deliver
such documents shall be deemed to be satisfied upon delivery to the Trustee of a
photocopy of such Mortgage Note, if available, with a lost note affidavit
substantially in the form of Exhibit K attached hereto. If any of the original
Mortgage Notes for which a lost note affidavit was delivered to the Trustee is
subsequently located, such original Mortgage Note shall be delivered to the
Trustee within three Business Days. If any of the documents referred to in
Sections 2.01(ii), (iii) or (iv) above has as of the Closing Date (or Subsequent
Transfer Date, with respect to the Subsequent Mortgage Loans) been submitted for
recording but either (x) has not been returned from the applicable public
recording office or (y) has been lost or such public recording office has
retained the original of such document, the obligations of the Depositor to
deliver such documents shall be deemed to be satisfied upon (1) delivery to the
Trustee of a copy of each such document certified by the Seller in the case of
(x) above or the applicable public recording office in the case of (y) above to
be a true and complete copy of the original that was submitted for recording and
(2) if such copy is certified by the Seller, delivery to the Trustee promptly
upon receipt thereof of either the original or a copy of such document certified
by the applicable public recording office to be a true and complete copy of the
original. Notice shall be provided to the Trustee and the Rating Agencies by the
Seller if delivery pursuant to clause (2) above will be made more than 180 days
after the Closing Date (or Subsequent Transfer Date, with respect to the
Subsequent Mortgage Loans). If the original lender's title insurance policy was
not delivered pursuant to Section 2.01(vi) above, the Depositor shall deliver or
cause to be delivered
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to the Trustee, promptly after receipt thereof, the original lender's title
insurance policy. The Depositor shall deliver or cause to be delivered to the
Trustee promptly upon receipt thereof any other original documents constituting
a part of a Mortgage File received with respect to any Mortgage Loan, including,
but not limited to, any original documents evidencing an assumption or
modification of any Mortgage Loan.
All original documents relating to the Mortgage Loans that are
not delivered to the Trustee are and shall be held by or on behalf of the
Seller, the Depositor or the Master Servicer, as the case may be, in trust for
the benefit of the Trustee on behalf of the Certificateholders. In the event
that any such original document is required pursuant to the terms of this
Section to be a part of a Mortgage File, such document shall be delivered
promptly to the Trustee. Any such original document delivered to or held by the
Depositor that is not required pursuant to the terms of this Section to be a
part of a Mortgage File, shall be delivered promptly to the Master Servicer.
The Depositor herewith delivers to the Trustee an executed
copy of the Mortgage Loan Purchase Agreement.
SECTION 2.02. Acceptance of REMIC I by Trustee.
The Trustee acknowledges receipt, subject to the provisions of
Section 2.01 and subject to any exceptions noted on the exception report
described in the next paragraph below, the documents referred to in Section 2.01
(other than such documents described in Section 2.01(v)) above and all other
assets included in the definition of "REMIC I" under clauses (i), (iii), (iv)
and (v) (to the extent of amounts deposited into the Distribution Account) and
declares that it holds and will hold such documents and the other documents
delivered to it constituting a Mortgage File, and that it holds or will hold all
such assets and such other assets included in the definition of "REMIC I" in
trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders,
to review each Mortgage File on or before the Closing Date (or Subsequent
Transfer Date, with respect to the Subsequent Mortgage Loans) and to certify in
substantially the form attached hereto as Exhibit C-1 that, as to each Initial
Mortgage Loan or Subsequent Mortgage Loan, as the case may be, listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (i) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required to be delivered to it pursuant to this Agreement are in its possession,
(ii) such documents have been reviewed by it and appear regular on their face
and relate to such Mortgage Loan, (iii) based on its examination and only as to
the foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (i) through (iii), (vi), (x)(A), (xi), (xii), (xv), (xvii),
(xviii), (xx) through (xxiii) and (xxv) of the definition of "Mortgage Loan
Schedule" accurately reflects information set forth in the Mortgage File. It is
herein acknowledged that, in conducting such review, the Trustee was under no
duty or obligation (i) to inspect, review or examine any such documents,
instruments, certificates or other papers to determine whether they are genuine,
enforceable, or appropriate for the represented purpose or whether they have
actually been recorded or that they are other than what they purport to be on
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their face, or (ii) to determine whether any Mortgage File should include any of
the documents specified in clause (v) of Section 2.01.
Prior to the first anniversary date of this Agreement the
Trustee shall deliver to the Depositor and the Master Servicer a final
certification in the form annexed hereto as Exhibit C-2 evidencing the
completeness of the Mortgage Files, with any applicable exceptions noted
thereon, with respect to all of the Initial Mortgage Loans and the Subsequent
Mortgage Loans, and the Master Servicer shall forward a copy thereof to any
Sub-Servicer.
If in the process of reviewing the Mortgage Files and making
or preparing, as the case may be, the certifications referred to above, the
Trustee finds any document or documents constituting a part of a Mortgage File
to be missing or defective in any material respect, at the conclusion of its
review the Trustee shall so notify the Depositor and the Master Servicer. In
addition, upon the discovery by the Depositor, the Master Servicer or the
Trustee of a breach of any of the representations and warranties made by the
Seller in the Mortgage Loan Purchase Agreement in respect of any Mortgage Loan
which materially adversely affects such Mortgage Loan or the interests of the
related Certificateholders in such Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties.
The Trustee shall, at the written request and expense of any
Certificateholder, provide a written report to such Certificateholder of all
Mortgage Files released to the Master Servicer for servicing purposes.
SECTION 2.03. Repurchase or Substitution of Mortgage Loans by
the Seller or the Depositor.
(a) Upon discovery or receipt of notice of any materially
defective document in, or that a document is missing from, a Mortgage File or of
the breach by the Seller of any representation, warranty or covenant under the
Mortgage Loan Purchase Agreement in respect of any Mortgage Loan that materially
adversely affects the value of such Mortgage Loan or the interest therein of the
Certificateholders, the Trustee shall promptly notify the Seller and the Master
Servicer of such defect, missing document or breach and request that the Seller
deliver such missing document or cure such defect or breach within 60 days from
the date the Seller was notified of such missing document, defect or breach, and
if the Seller does not deliver such missing document or cure such defect or
breach in all material respects during such period, the Trustee, in accordance
with Section 3.02(b), shall enforce the obligations of the Seller under the
Mortgage Loan Purchase Agreement to repurchase such Mortgage Loan from REMIC I
at the Purchase Price within 90 days after the date on which the Seller was
notified (subject to Section 2.03(e)) of such missing document, defect or
breach, if and to the extent that the Seller is obligated to do so under the
Mortgage Loan Purchase Agreement. The Purchase Price for the repurchased
Mortgage Loan shall be deposited in the Collection Account and the Trustee, upon
receipt of written certification from the Master Servicer of such deposit, shall
release to the Seller the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
the Seller shall furnish to it and as shall be necessary to vest in the Seller
any Mortgage Loan released pursuant hereto and the Trustee shall have no further
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responsibility with regard to such Mortgage File. In lieu of repurchasing any
such Mortgage Loan as provided above, if so provided in the Mortgage Loan
Purchase Agreement, the Seller may cause such Mortgage Loan to be removed from
REMIC I (in which case it shall become a Deleted Mortgage Loan) and substitute
one or more Qualified Substitute Mortgage Loans in the manner and subject to the
limitations set forth in Section 2.03(d). It is understood and agreed that the
obligation of the Seller to cure or to repurchase (or to substitute for) any
Mortgage Loan as to which a document is missing, a material defect in a
constituent document exists or as to which such a breach has occurred and is
continuing shall constitute the sole remedy respecting such omission, defect or
breach available to the Trustee on behalf of the Certificateholders.
(b) Subject to Section 2.03(e), within 90 days of the earlier
of discovery by the Depositor or receipt of notice by the Depositor of the
breach of any representation or warranty of the Depositor set forth in Section
2.04 with respect to any Mortgage Loan, which materially adversely affects the
value of such Mortgage Loan or the interest therein of the Certificateholders,
the Depositor shall (i) cure such breach in all material respects, (ii)
repurchase the Mortgage Loan from REMIC I at the Purchase Price or (iii) remove
such Mortgage Loan from REMIC I (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in
the manner and subject to the limitations set forth in Section 2.03(d). If any
such breach is a breach of any of the representations and warranties included in
Section 2.04(a)(iv), and the Depositor is unable to cure such breach, the
Depositor shall repurchase or substitute the smallest number of Mortgage Loans
as shall be required to make such representation or warranty true and correct.
The Purchase Price for any repurchased Mortgage Loan shall be delivered to the
Master Servicer for deposit in the Collection Account, and the Trustee, upon
receipt of written certification from the Master Servicer of such deposit, shall
at the Depositor's direction release to the Depositor the related Mortgage File
and shall execute and deliver such instruments of transfer or assignment
furnished by the Depositor, in each case without recourse, as the Depositor
shall furnish to it and as shall be necessary to vest in the Depositor any
Mortgage Loan released pursuant hereto.
(c) Within 90 days of the earlier of discovery by the Master
Servicer or receipt of notice by the Master Servicer of the breach of any
representation, warranty or covenant of the Master Servicer set forth in Section
2.05 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan or Prepayment Charge, the Master
Servicer shall cure such breach in all material respects.
(d) Any substitution of Qualified Substitute Mortgage Loans
for Deleted Mortgage Loans made pursuant to Section 2.03(a), in the case of the
Seller, or Section 2.03(b), in the case of the Depositor, must be effected prior
to the date which is two years after the Startup Day for REMIC I.
As to any Deleted Mortgage Loan for which the Seller or the
Depositor substitutes a Qualified Substitute Mortgage Loan or Loans, such
substitution shall be effected by the Seller or the Depositor, as the case may
be, delivering to the Trustee, for such Qualified Substitute Mortgage Loan or
Loans, the Mortgage Note, the Mortgage, the Assignment to the Trustee, and such
other documents and agreements, with all necessary endorsements thereon, as are
required
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by Section 2.01, together with an Officers' Certificate providing that each such
Qualified Substitute Mortgage Loan satisfies the definition thereof and
specifying the Substitution Shortfall Amount (as described below), if any, in
connection with such substitution. The Trustee shall acknowledge receipt for
such Qualified Substitute Mortgage Loan or Loans and, within ten Business Days
thereafter, review such documents as specified in Section 2.02 and deliver to
the Depositor and the Master Servicer, with respect to such Qualified Substitute
Mortgage Loan or Loans, a certification substantially in the form attached
hereto as Exhibit C-1, with any applicable exceptions noted thereon. Within one
year of the date of substitution, the Trustee shall deliver to the Depositor and
the Master Servicer a certification substantially in the form of Exhibit C-2
hereto with respect to such Qualified Substitute Mortgage Loan or Loans, with
any applicable exceptions noted thereon. Monthly Payments due with respect to
Qualified Substitute Mortgage Loans in the month of substitution are not part of
REMIC I and will be retained by the Depositor or the Seller, as the case may be.
For the month of substitution, distributions to Certificateholders will reflect
the Monthly Payment due on such Deleted Mortgage Loan on or before the Due Date
in the month of substitution, and the Depositor or the Seller, as the case may
be, shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Loan. The Depositor shall give or cause to be
given written notice to the Certificateholders that such substitution has taken
place, shall amend the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan from the terms of this Agreement and the substitution of
the Qualified Substitute Mortgage Loan or Loans and shall deliver a copy of such
amended Mortgage Loan Schedule to the Trustee. Upon such substitution, such
Qualified Substitute Mortgage Loan or Loans shall constitute part of the
Mortgage Pool and shall be subject in all respects to the terms of this
Agreement and, in the case of a substitution effected by the Seller, the
Mortgage Loan Purchase Agreement, including, in the case of a substitution
effected by the Seller, all applicable representations and warranties thereof
included in the Mortgage Loan Purchase Agreement, and in the case of a
substitution effected by the Depositor, all applicable representations and
warranties thereof set forth in Section 2.04, in each case as of the date of
substitution.
For any month in which the Depositor or the Seller substitutes
one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage
Loans, the Master Servicer will determine the amount (the "Substitution
Shortfall Amount"), if any, by which the aggregate Purchase Price of all such
Deleted Mortgage Loans exceeds the aggregate of, as to each such Qualified
Substitute Mortgage Loan, the Scheduled Principal Balance thereof as of the date
of substitution, together with one month's interest on such Scheduled Principal
Balance at the applicable Net Mortgage Rate, plus all outstanding P&I Advances
and Servicing Advances (including Nonrecoverable P&I Advances and Nonrecoverable
Servicing Advances) related thereto. On the date of such substitution, the
Depositor or the Seller, as the case may be, will deliver or cause to be
delivered to the Master Servicer for deposit in the Collection Account an amount
equal to the Substitution Shortfall Amount, if any, and the Trustee, upon
receipt of the related Qualified Substitute Mortgage Loan or Loans and
certification by the Master Servicer of such deposit, shall release to the
Depositor or the Seller, as the case may be, the related Mortgage File or Files
and shall execute and deliver such instruments of transfer or assignment, in
each case without recourse, as the Depositor or the Seller, as the case may be,
shall deliver to it and as shall be necessary to vest therein any Deleted
Mortgage Loan released pursuant hereto.
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In addition, the Depositor or the Seller, as the case may be,
shall obtain at its own expense and deliver to the Trustee an Opinion of Counsel
to the effect that such substitution will not cause (a) any federal tax to be
imposed on any of REMIC I, REMIC II or REMIC III, including without limitation,
any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of
the Code or on "contributions after the startup date" under Section 860G(d)(1)
of the Code, or (b) any of REMIC I, REMIC II or REMIC III to fail to qualify as
a REMIC at any time that any Certificate is outstanding.
(e) Upon discovery by the Depositor, the Seller, the Master
Servicer or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall within two Business Days give written notice thereof
to the other parties. In connection therewith, the Seller or the Depositor shall
repurchase or, subject to the limitations set forth in Section 2.03(d),
substitute one or more Qualified Substitute Mortgage Loans for the affected
Mortgage Loan within 90 days of the earlier of discovery or receipt of such
notice with respect to such affected Mortgage Loan. Such repurchase or
substitution shall be made by (i) the Seller if the affected Mortgage Loan's
status as a non-qualified mortgage is or results from a breach of any
representation, warranty or covenant made by the Seller under the Mortgage Loan
Purchase Agreement, or (ii) the Depositor, if the affected Mortgage Loan's
status as a non-qualified mortgage is a breach of any representation or warranty
of the Depositor set forth in Section 2.04, or if its status as a non-qualified
mortgage is a breach of no representation or warranty. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.03(a),
if made by the Seller, or Section 2.03(b), if made by the Depositor. The Trustee
shall reconvey to the Depositor or the Seller, as the case may be, the Mortgage
Loan to be released pursuant hereto in the same manner, and on the same terms
and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty.
SECTION 2.04. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the
Trustee for the benefit of the Certificateholders that as of the Closing Date or
as of such other date specifically provided herein:
(i) The information set forth in the Mortgage Loan
Schedule for the Initial Mortgage Loans is complete, true and
correct in all material respects at the date or dates
respecting which such information is furnished;
(ii) Except with respect to approximately _______% of
the Initial Mortgage Loans which were 30 days or more but less
than 60 days delinquent in their Monthly Payment, by
outstanding principal balance of the Initial Mortgage Loans as
of the Cut-off Date, as of the Cut-off Date, the Monthly
Payment due under each Initial Mortgage Loan is not 30 or more
days delinquent in payment and has not been 30 or more days
delinquent in payment more than once in the twelve month
period prior to the Cut-off Date (assuming that a "rolling" 30
day delinquency is considered to be delinquent only once);
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(iii) Each Initial Mortgage Loan had an original term to
maturity of not greater than 30 years; each Initial Mortgage
Loan is an adjustable-rate mortgage loan with payments
generally due on the first day of each month and each such
Mortgage Loan is fully amortizing; effective with the first
payment due after each Adjustment Date, the monthly payment
amount for each Initial Mortgage Loan will be adjusted to an
amount which would amortize fully the outstanding principal
balance of such Mortgage Loan over its remaining term and pay
interest at the Mortgage Rate so adjusted; on the first
Adjustment Date and on each Adjustment Date thereafter, the
Mortgage Rate on each Initial Mortgage Loan will be adjusted
to equal the sum of the Index and the related Gross Margin,
rounded to the nearest multiple of 0.125%, subject to the
Periodic Rate Cap, the Maximum Mortgage Rate and the Minimum
Mortgage Rate applicable to such Mortgage Loan;
(iv) (A) No more than approximately _______%,
approximately _________%, approximately _______%,
approximately ______%, approximately ________%, approximately
_______%, approximately _______%, approximately ________% and
approximately ______% of the Initial Mortgage Loans, by
outstanding principal balance of the Initial Mortgage Loans as
of the Cut-off Date, will be secured by Mortgaged Properties
located in Arizona, California, Colorado, Illinois, Michigan,
Minnesota, Ohio, Washington and Wisconsin, respectively, and
no more than ______% of the Initial Mortgage Loans, by
outstanding principal balance of the Initial Mortgage Loans as
of the Cut-off Date, will be secured by Mortgaged Properties
located in any other state; (B) as of the Cut-off Date, no
more than approximately _______% of the Initial Mortgage
Loans, by outstanding principal balance of the Initial
Mortgage Loans as of the Cut-off Date, are secured by
Mortgaged Properties located in any one California zip code
area, and no more than approximately ______% of the Initial
Mortgage Loans, by outstanding principal balance of the
Initial Mortgage Loans as of the Cut-off Date, are secured by
units in two- to four-family dwellings, condominiums, town
houses, planned unit developments or manufactured housing and;
(C) at least approximately _______% of the Initial Mortgage
Loans, by outstanding principal balance of the Initial
Mortgage Loans as of the Cut-off Date, are secured by real
property with a single family residence erected thereon;
(v) If the Mortgaged Property securing an Initial
Mortgage Loan is identified in the Federal Register by the
Federal Emergency Management Agency ("FEMA") as having special
flood hazards, as of the Closing Date, such Mortgaged Property
is covered by a flood insurance policy that met the
requirements of FEMA at the time such policy was issued;
(vi) With respect to each Initial Mortgage Loan, the
Loan-to-Value Ratio was less than or equal to ________% at the
origination of such Initial Mortgage Loan; and
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(vii) With respect to at least approximately ________% of
the Initial Mortgage Loans by outstanding principal balance as
of the Cut-off Date, at the time that such Mortgage Loan was
made, the Mortgagor represented that the Mortgagor would
occupy the Mortgaged Property as the Mortgagor's primary
residence. With respect to approximately _______% of the
Initial Mortgage Loans by outstanding principal balance as of
the Cut-off Date, at the time that such Mortgage Loan was
made, the Mortgagor represented that the Mortgagor would
occupy the Mortgaged Property as the Mortgagor's secondary
residence or that the Mortgaged Property would be an investor
property.
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trustee and shall inure to the benefit of the Certificateholders
notwithstanding any restrictive or qualified endorsement or assignment. Upon
discovery by any of the Depositor, the Master Servicer or the Trustee of a
breach of any of the foregoing representations and warranties which materially
and adversely affects the value of any Mortgage Loan, Prepayment Charge or the
interests therein of the Certificateholders, the party discovering such breach
shall give prompt written notice to the other parties, and in no event later
than two Business Days from the date of such discovery. It is understood and
agreed that the obligations of the Depositor set forth in Section 2.03(b) to
cure, substitute for or repurchase a Mortgage Loan constitute the sole remedies
available to the Certificateholders or to the Trustee on their behalf respecting
a breach of the representations and warranties contained in this Section 2.04.
SECTION 2.05. Representations, Warranties and Covenants of the
Master Servicer.
The Master Servicer hereby represents, warrants and covenants
to the Trustee, for the benefit of each of the Trustee, the Certificateholders
and to the Depositor that as of the Closing Date or as of such date specifically
provided herein:
(i) The Master Servicer is a corporation duly
organized, validly existing and in good standing under the
laws of the State of ______________ and is duly authorized and
qualified to transact any and all business contemplated by
this Agreement to be conducted by the Master Servicer in any
state in which a Mortgaged Property is located or is otherwise
not required under applicable law to effect such qualification
and, in any event, is in compliance with the doing business
laws of any such State, to the extent necessary to ensure its
ability to enforce each Mortgage Loan and to service the
Mortgage Loans in accordance with the terms of this Agreement;
(ii) The Master Servicer has the full power and
authority to conduct its business as presently conducted by it
and to execute, deliver and perform, and to enter into and
consummate, all transactions contemplated by this Agreement.
The Master Servicer has duly authorized the execution,
delivery and performance of this Agreement, has duly executed
and delivered this Agreement, and this
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Agreement, assuming due authorization, execution and delivery
by the Depositor and the Trustee, constitutes a legal, valid
and binding obligation of the Master Servicer, enforceable
against it in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity;
(iii) The execution and delivery of this Agreement by the
Master Servicer, the servicing of the Mortgage Loans by the
Master Servicer hereunder, the consummation by the Master
Servicer of any other of the transactions herein contemplated,
and the fulfillment of or compliance with the terms hereof are
in the ordinary course of business of the Master Servicer and
will not (A) result in a breach of any term or provision of
the charter or by-laws of the Master Servicer or (B) conflict
with, result in a breach, violation or acceleration of, or
result in a default under, the terms of any other material
agreement or instrument to which the Master Servicer is a
party or by which it may be bound, or any statute, order or
regulation applicable to the Master Servicer of any court,
regulatory body, administrative agency or governmental body
having jurisdiction over the Master Servicer; and the Master
Servicer is not a party to, bound by, or in breach or
violation of any indenture or other agreement or instrument,
or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which
materially and adversely affects or, to the Master Servicer's
knowledge, would in the future materially and adversely
affect, (x) the ability of the Master Servicer to perform its
obligations under this Agreement or (y) the business,
operations, financial condition, properties or assets of the
Master Servicer taken as a whole;
(iv) The Master Servicer is a HUD approved mortgagee
pursuant to Section 203 of the National Housing Act. No event
has occurred, including but not limited to a change in
insurance coverage, that would make the Master Servicer unable
to comply with HUD eligibility requirements or that would
require notification to HUD;
(v) The Master Servicer does not believe, nor does it
have any reason or cause to believe, that it cannot perform
each and every covenant made by it and contained in this
Agreement;
(vi) With respect to each Mortgage Loan, the Master
Servicer, or Sub- Servicer if any, is in possession of a
complete Mortgage File, except for such documents as have been
delivered to the Trustee;
(vii) No litigation is pending against the Master
Servicer that would materially and adversely affect the
execution, deliver or enforceability of this Agreement or the
ability of the Master Servicer to service the Mortgage Loans
or
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to perform any of its other obligations hereunder in
accordance with the terms hereof;
(viii) There are no actions or proceedings against, or
investigations known to it of, the Master Servicer before any
court, administrative or other tribunal (A) that might
prohibit its entering into this Agreement, (B) seeking to
prevent the consummation of the transactions contemplated by
this Agreement or (C) that might prohibit or materially and
adversely affect the performance by the Master Servicer of its
obligations under, or validity or enforceability of, this
Agreement;
(ix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
execution, delivery and performance by the Master Servicer of,
or compliance by the Master Servicer with, this Agreement or
the consummation by it of the transactions contemplated by
this Agreement, except for such consents, approvals,
authorizations or orders, if any, that have been obtained
prior to the Closing Date;
(x) The information set forth in the Prepayment Charge
Schedule (including the prepayment charge summary attached
thereto) is complete, true and correct in all material
respects on the date or dates when such information is
furnished and each Prepayment Charge is permissible and
enforceable in accordance with its terms (except to the extent
that the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally or the collectability
thereof may be limited due to acceleration in connection with
a foreclosure) under applicable state law; and
(xi) The Master Servicer will not waive any Prepayment
Charge unless it is waived in accordance with the standard set
forth in Section 3.01.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.05 shall survive delivery
of the Mortgage Files to the Trustee and shall inure to the benefit of the
Trustee, the Depositor and the Certificateholders. Upon discovery by any of the
Depositor, the Master Servicer or the Trustee of a breach of any of the
foregoing representations, warranties and covenants which materially and
adversely affects the value of any Mortgage Loan, Prepayment Charge or the
interests therein of the Certificateholders, the party discovering such breach
shall give prompt written notice (but in no event later than two Business Days
following such discovery) to the Trustee. Subject to Section 7.01, unless such
breach shall not be susceptible of cure within 90 days, the obligation of the
Master Servicer set forth in Section 2.03(c) to cure breaches shall constitute
the sole remedy against the Master Servicer available to the Certificateholders,
the Depositor or the Trustee on behalf of the Certificateholders respecting a
breach of the representations, warranties and covenants contained in this
Section 2.05. Notwithstanding the foregoing, within 90 days of the earlier of
discovery by the Master Servicer or receipt of notice by the Master Servicer of
the breach of the representation or covenant of the Master Servicer set forth in
Sections 2.05(x) or 2.05(xi) above which materially and adversely
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affects the interests of the Holders of the Class P Certificates in any
Prepayment Charge, the Master Servicer shall remedy such breach as follows: (a)
if the representation made by the Master Servicer in Section 2.05(x) above is
breached and a Principal Prepayment has occurred in the applicable Prepayment
Period, the Master Servicer must pay the amount of the scheduled Prepayment
Charge, for the benefit of the holder of the Class P Certificate, by depositing
such amount into the Collection Account, net of any amount previously collected
by the Master Servicer or paid by the Master Servicer, for the benefit of the
Holders of the Class P Certificates, in respect of such Prepayment Charge; and
(b) if any of the covenants made by the Master Servicer in Section 2.05(xi)
above is breached, the Master Servicer must pay the amount of such waived
Prepayment Charge, for the benefit of the holders of the Class P Certificates,
by depositing such amount into the Collection Account. The foregoing shall not,
however, limit any remedies available to the Certificateholders, the Depositor
or the Trustee on behalf of the Certificateholders, pursuant to the Mortgage
Loan Purchase Agreement signed by the Master Servicer in its capacity as Seller,
respecting a breach of the representations, warranties and covenants of the
Master Servicer in its capacity as Seller contained in the Mortgage Loan
Purchase Agreement.
SECTION 2.06. Issuance of the Class R-I Certificates.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery to it of the Mortgage Files, subject to the provisions of
Section 2.01 and Section 2.02, together with the assignment to it of all other
assets included in REMIC I, the receipt of which is hereby acknowledged.
Concurrently with such assignment and delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Depositor executed by an officer
of the Depositor, has executed, authenticated and delivered to or upon the order
of the Depositor, the Class R-I Certificates in authorized denominations. The
interests evidenced by the Class R-I Certificates, together with the REMIC I
Regular Interests, constitute the entire beneficial ownership interest in REMIC
I. The rights of the Class R-I Certificateholders and REMIC II (as holder of the
REMIC I Regular Interests) to receive distributions from the proceeds of REMIC I
in respect of the Class R-I Certificates and the REMIC I Regular Interests,
respectively, and all ownership interests evidenced or constituted by the Class
R-I Certificates and the REMIC I Regular Interests, shall be as set forth in
this Agreement.
SECTION 2.07. Conveyance of the REMIC I Regular Interests;
Acceptance of REMIC II by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse all the right, title and interest of the Depositor in
and to the REMIC I Regular Interests for the benefit of the Class R-II and REMIC
III Certificateholders. The Trustee acknowledges receipt of the REMIC I Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future Class R-II
Certificateholders and REMIC III Certificateholders. The rights of the Class
R-II Certificateholders and REMIC III (as holder of the REMIC II Regular
Interests) to receive distributions from the proceeds of REMIC II in respect of
the Class R-II Certificates and REMIC II Regular Interests, respectively, and
all ownership
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interests evidenced or constituted by the Class R-II Certificates and the REMIC
II Regular Interests, shall be as set forth in this Agreement.
SECTION 2.08. Issuance of Class R-II Certificates.
The Trustee acknowledges the assignment to it of the REMIC I
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed by an officer of the Depositor,
the Trustee has executed, authenticated and delivered to or upon the order of
the Depositor, the Class R-II Certificates in authorized denominations. The
interests evidenced by the Class R-II Certificates, together with the REMIC II
Regular Interests, constitute the entire beneficial ownership interest in REMIC
II.
SECTION 2.09. Conveyance of REMIC II Regular Interests;
Acceptance of REMIC III by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse all the right, title and interest of the Depositor in
and to the REMIC II Regular Interests for the benefit of the REMIC III
Certificateholders. The Trustee acknowledges receipt of the REMIC II Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future REMIC III
Certificateholders. The rights of the REMIC III Certificateholders to receive
distributions from the proceeds of REMIC III in respect of the REMIC III
Certificates, and all ownership interests evidenced or constituted by the REMIC
III Certificates, shall be as set forth in this Agreement.
SECTION 2.10. Issuance of REMIC III Certificates.
The Trustee acknowledges the assignment to it of the REMIC II
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed by an officer of the Depositor,
the Trustee has executed, authenticated and delivered to or upon the order of
the Depositor, the REMIC III Certificates in authorized denominations evidencing
the entire beneficial ownership interest in REMIC III.
SECTION 2.11. Conveyance of the Subsequent Mortgage Loans.
(a) Subject to the conditions set forth in paragraph (b) below
in consideration of the Trustee's delivery on the Subsequent Transfer Dates to
or upon the order of the Depositor of all or a portion of the balance of funds
in the Pre-Funding Account, the Depositor shall on any Subsequent Transfer Date
sell, transfer, assign, set over and convey without recourse to the Trust Fund
but subject to the other terms and provisions of this Agreement all of the
right, title and interest of the Depositor in and to (i) the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Depositor on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans after the related Subsequent Cut-off Date and (iii) all items
with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.01 and the other items in the
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related Mortgage Files; PROVIDED, HOWEVER, that the Depositor reserves and
retains all right, title and interest in and to principal received and interest
accruing on the Subsequent Mortgage Loans prior to the related Subsequent
Cut-off Date. The transfer to the Trustee for deposit in the Mortgage Pool by
the Depositor of the Subsequent Mortgage Loans identified on the Mortgage Loan
Schedule shall be absolute and is intended by the Depositor, the Master
Servicer, the Trustee and the Certificateholders to constitute and to be treated
as a sale of the Subsequent Mortgage Loans by the Depositor to the Trust Fund.
The related Mortgage File for each Subsequent Mortgage Loan shall be delivered
to the Trustee at least three Business Days prior to the related Subsequent
Transfer Date.
The purchase price paid by the Trustee from amounts released
from the Pre- Funding Account shall be one-hundred percent (100%) of the
aggregate Stated Principal Balance of the Subsequent Mortgage Loans so
transferred (as identified on the Mortgage Loan Schedule provided by the
Depositor). This Agreement shall constitute a fixed-price purchase contract in
accordance with Section 860G(a)(3)(A)(ii) of the Code.
(b) The Depositor shall transfer to the Trustee for deposit in
the Mortgage Pool the Subsequent Mortgage Loans and the other property and
rights related thereto as described in paragraph (a) above, and the Trustee
shall release funds from the Pre-Funding Account, only upon the satisfaction of
each of the following conditions on or prior to the related Subsequent Transfer
Date:
(i) the Depositor shall have provided the Trustee with a
timely Addition Notice and shall have provided any information
reasonably requested by the Trustee with respect to the Subsequent
Mortgage Loans;
(ii) the Depositor shall have delivered to the Trustee a duly
executed Subsequent Transfer Instrument, which shall include a Mortgage
Loan Schedule listing the Subsequent Mortgage Loans, and the Master
Servicer, in its capacity as Seller, shall have delivered a computer
file containing such Mortgage Loan Schedule to the Trustee at least
three Business Days prior to the related Subsequent Transfer Date;
(iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Subsequent Transfer Instrument, substantially in the
form of Exhibit I, the Depositor shall not be insolvent nor shall it
have been rendered insolvent by such transfer nor shall it be
aware of any pending insolvency;
(iv) such sale and transfer shall not result in a material
adverse tax consequence
to the Trust Fund or the Certificateholders;
(v) the Funding Period shall not have terminated;
(vi) the Depositor shall not have selected the Subsequent
Mortgage Loans in a manner that it believed to be adverse to the
interests of the Certificateholders;
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(vii) the Depositor shall have delivered to the Trustee a
Subsequent Transfer Instrument confirming the satisfaction of the
conditions precedent specified in this Section 2.11 and, pursuant to
the Subsequent Transfer Instrument, assigned to the Trustee without
recourse for the benefit of the Certificateholders all the right, title
and interest of the Depositor, in, to and under the Subsequent Mortgage
Loan Purchase Agreement, to the extent of the Subsequent Mortgage
Loans;
(viii) the Depositor shall have delivered to the Trustee a
letter from an Independent accountant (with copies provided to each
Rating Agency) stating that the characteristics of the Subsequent
Mortgage Loans conform to the characteristics set forth
in paragraphs (c) and (d) below;
(ix) the Depositor shall have delivered to the Trustee an
Opinion of Counsel addressed to the Trustee and the Rating Agencies
with respect to the transfer of the Subsequent Mortgage Loans
substantially in the form of the Opinion of Counsel delivered to the
Trustee on the Closing Date regarding the true sale of the Subsequent
Mortgage Loans; and
(x) the Trustee shall have delivered to the Depositor an
Opinion of Counsel addressed to the Depositor and the Rating Agencies
with respect to the Subsequent Transfer Instrument substantially in the
form of the Opinion of Counsel delivered to the Depositor on the
Closing Date regarding certain corporate matters relating to the
Trustee.
(c) The obligation of the Trust Fund to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the satisfaction of
the conditions set forth in paragraph (d) below and the accuracy of the
following representations and warranties with respect to such Subsequent
Mortgage Loan determined as of the Subsequent Cut-off Date: (i) the Subsequent
Mortgage Loan may not be 30 or more days delinquent as of the related Subsequent
Cut-off Date (except with respect to _______% of the Subsequent Mortgage Loans,
by aggregate principal balance as of the related Subsequent Cut-off Date, which
may be 30 or more days delinquent but less than 60 days delinquent as of the
related Subsequent Cut-off Date); (ii) the stated term to maturity of the
Subsequent Mortgage Loan will not be less than 60 months and will not exceed 360
months; (iii) the Subsequent Mortgage Loan may not provide for negative
amortization; (iv) the Subsequent Mortgage Loan will not have a Loan-to-Value
Ratio greater than __________%; (v) the Subsequent Mortgage Loans will have as
of the Subsequent Cut-off Date, a weighted average term since origination not in
excess of 6 months; (vi) no Subsequent Mortgage Loan shall have a Mortgage Rate
less than _______% or greater than ________%; (vii) the Subsequent Mortgage Loan
will have been serviced by the Master Servicer since origination or purchased by
the Depositor; (viii) the Subsequent Mortgage Loan must have a first Monthly
Payment due on or before ____________________; and (ix) the Subsequent Mortgage
Loan will be underwritten in accordance with the criteria set forth under the
section "The Mortgage Pool--Underwriting Standards; Representations" in the
Prospectus Supplement.
(d) Following the purchase of the Subsequent Mortgage Loans by
the Trust Fund, the Mortgage Loans (including the Subsequent Mortgage Loans)
will, as of the Subsequent
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Cut-off Date: (i) have a weighted average original term to stated maturity of
not more than ______ months; (ii) have a weighted average Mortgage Rate of not
less than ________% and not more than _________%; (iii) have a weighted average
Loan-to-Value Ratio of not more than ------%; (iv) have no Mortgage Loan with a
principal balance in excess of $__________ and (v) have a weighted average Gross
Margin of not less than ______%, in each case, as applicable, by aggregate
principal balance of the Mortgage Loans as of the Subsequent Cut-off Date.
(e) Notwithstanding the foregoing, any Subsequent Mortgage
Loan may be rejected by either Rating Agency if the inclusion of any such
Subsequent Mortgage Loan would adversely affect the ratings of any Class of
Certificates. At least one Business Day prior to the Subsequent Transfer Date,
each Rating Agency shall notify the Trustee as to which Subsequent Mortgage
Loans, if any, shall not be included in the transfer on the Subsequent Transfer
Date; provided, however, that the Master Servicer, in its capacity as Seller,
shall have delivered to each Rating Agency at least three Business Days prior to
such Subsequent Transfer Date a computer file acceptable to each Rating Agency
describing the characteristics specified in paragraphs (c) and (d) above.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage
Loans on behalf of the Trustee and in the best interests of and for the benefit
of the Certificateholders (as determined by the Master Servicer in its
reasonable judgment) in accordance with the terms of this Agreement and the
respective Mortgage Loans and, to the extent consistent with such terms, in the
same manner in which it services and administers similar mortgage loans for its
own portfolio, giving due consideration to customary and usual standards of
practice of mortgage lenders and loan servicers administering similar mortgage
loans but without regard to:
(i) any relationship that the Master Servicer, any
Sub-Servicer or any Affiliate of the Master Servicer or any
Sub-Servicer may have with the related Mortgagor;
(ii) the ownership or non-ownership of any Certificate
by the Master Servicer or any Affiliate of the Master
Servicer;
(iii) the Master Servicer's obligation to make P&I
Advances or Servicing Advances; or
(iv) the Master Servicer's or any Sub-Servicer's right
to receive compensation for its services hereunder or with
respect to any particular transaction.
To the extent consistent with the foregoing, the Master Servicer (a) shall seek
to maximize the timely and complete recovery of principal and interest on the
Mortgage Notes and (b) shall waive (or permit a subservicer to waive) a
Prepayment Charge only under the following circumstances: (i) such waiver is
standard and customary in servicing similar Mortgage Loans and (ii) either (A)
such waiver would, in the reasonable judgement of the Master Servicer, maximize
recovery of total proceeds taking into account the value of such Prepayment
Charge and the related Mortgage Loan and, if such waiver is made in connection
with a refinancing of the related Mortgage Loan, such refinancing is related to
a default or a reasonably foreseeable default or (B) such waiver is made in
connection with a refinancing of the related Mortgage Loan unrelated to a
default or a reasonably foreseeable default where (x) the related mortgagor has
stated to the Master Servicer or an applicable subservicer an intention to
refinance the related Mortgage Loan and (y) the Master Servicer has concluded in
its reasonable judgement that the waiver of such Prepayment Charge would induce
such mortgagor to refinance with the Master Servicer. If a Prepayment Charge is
waived as permitted by meeting the standards described in clauses (i) and
(ii)(B) above, then the Master Servicer is required to pay the amount of such
waived Prepayment Charge, for the benefit of the Holders of the Class P
Certificates, by depositing such amount into the
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Collection Account together with and at the time that the amount prepaid on the
related Mortgage Loan is required to be deposited into the Collection Account.
Subject only to the above-described servicing standards and the terms of this
Agreement and of the respective Mortgage Loans, the Master Servicer shall have
full power and authority, acting alone or through Sub-Servicers as provided in
Section 3.02, to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
Without limiting the generality of the foregoing, the Master Servicer in its own
name or in the name of a Sub-Servicer is hereby authorized and empowered by the
Trustee when the Master Servicer believes it appropriate in its best judgment in
accordance with the servicing standards set forth above, to execute and deliver,
on behalf of the Certificateholders and the Trustee, and upon notice to the
Trustee, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with respect
to the Mortgage Loans and the Mortgaged Properties and to institute foreclosure
proceedings or obtain a deed-in-lieu of foreclosure so as to convert the
ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Trustee and Certificateholders. The Master Servicer
shall service and administer the Mortgage Loans in accordance with applicable
state and federal law and shall provide to the Mortgagors any reports required
to be provided to them thereby. The Master Servicer shall also comply in the
performance of this Agreement with all reasonable rules and requirements of each
insurer under any standard hazard insurance policy. Subject to Section 3.17, the
Trustee shall execute, at the written request of the Master Servicer, and
furnish to the Master Servicer and any Sub-Servicer any special or limited
powers of attorney and other documents necessary or appropriate to enable the
Master Servicer or any Sub-Servicer to carry out their servicing and
administrative duties hereunder and the Trustee shall not be liable for the
actions of the Master Servicer or any Sub-Servicers under such powers of
attorney.
Subject to Section 3.09 hereof, in accordance with the
standards of the preceding paragraph, the Master Servicer shall advance or cause
to be advanced funds as necessary for the purpose of effecting the timely
payment of taxes and assessments on the Mortgaged Properties, which advances
shall be Servicing Advances reimbursable in the first instance from related
collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. Any cost incurred by the Master Servicer or by
Sub-Servicers in effecting the timely payment of taxes and assessments on a
Mortgaged Property shall not, for the purpose of calculating distributions to
Certificateholders, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary,
the Master Servicer may not make any future advances with respect to a Mortgage
Loan (except as provided in Section 4.03) and the Master Servicer shall not (i)
permit any modification with respect to any Mortgage Loan that would change the
Mortgage Rate, reduce or increase the principal balance (except for reductions
resulting from actual payments of principal) or change the final maturity date
on such Mortgage Loan (unless, as provided in Section 3.07, the Mortgagor is in
default with respect to the Mortgage Loan or such default is, in the judgment of
the Master Servicer, reasonably foreseeable) or (ii) permit any modification,
waiver or amendment of any term of any Mortgage Loan that would both (A) effect
an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code
(or Treasury regulations promulgated thereunder) and (B) cause any of REMIC
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I, REMIC II or REMIC III to fail to qualify as a REMIC under the Code or the
imposition of any tax on "prohibited transactions" or "contributions after the
startup date" under the REMIC Provisions.
The Master Servicer may delegate its responsibilities under
this Agreement; provided, however, that no such delegation shall release the
Master Servicer from the responsibilities or liabilities arising under this
Agreement.
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer
and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing
Agreements with Sub- Servicers for the servicing and administration of the
Mortgage Loans; provided, however, that such agreements would not result in a
withdrawal or a downgrading by any Rating Agency of the rating on any Class of
Certificates. The Trustee is hereby authorized to acknowledge, at the request of
the Master Servicer, any Sub-Servicing Agreement that meets the requirements
applicable to Sub-Servicing Agreements set forth in this Agreement and that is
otherwise permitted under this Agreement.
Each Sub-Servicer shall be (i) authorized to transact business
in the state or states where the related Mortgaged Properties it is to service
are situated, if and to the extent required by applicable law to enable the
Sub-Servicer to perform its obligations hereunder and under the Sub-Servicing
Agreement and (ii) a Freddie Mac or Fannie Mae approved mortgage servicer. Each
Sub-Servicing Agreement must impose on the Sub-Servicer requirements conforming
to the provisions set forth in Section 3.08 and provide for servicing of the
Mortgage Loans consistent with the terms of this Agreement. The Master Servicer
will examine each Sub-Servicing Agreement and will be familiar with the terms
thereof. The terms of any Sub-Servicing Agreement will not be inconsistent with
any of the provisions of this Agreement. The Master Servicer and the
Sub-Servicers may enter into and make amendments to the Sub-Servicing Agreements
or enter into different forms of Sub-Servicing Agreements; provided, however,
that any such amendments or different forms shall be consistent with and not
violate the provisions of this Agreement, and that no such amendment or
different form shall be made or entered into which could be reasonably expected
to be materially adverse to the interests of the Certificateholders without the
consent of the Holders of Certificates entitled to at least 66% of the Voting
Rights; provided, further, that the consent of the Holders of Certificates
entitled to at least 66% of the Voting Rights shall not be required (i) to cure
any ambiguity or defect in a Sub- Servicing Agreement, (ii) to correct, modify
or supplement any provisions of a Sub-Servicing Agreement, or (iii) to make any
other provisions with respect to matters or questions arising under a
Sub-Servicing Agreement, which, in each case, shall not be inconsistent with the
provisions of this Agreement. Any variation without the consent of the Holders
of Certificates entitled to at least 66% of the Voting Rights from the
provisions set forth in Section 3.08 relating to insurance or priority
requirements of Sub-Servicing Accounts, or credits and charges to the
Sub-Servicing Accounts or the timing and amount of remittances by the
Sub-Servicers to the Master Servicer, are conclusively deemed to be inconsistent
with this Agreement and therefore prohibited. The Master Servicer shall deliver
to the Trustee copies of all Sub-Servicing Agreements, and any
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amendments or modifications thereof, promptly upon the Master Servicer's
execution and delivery of such instruments.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each Sub-Servicer under the related Sub-Servicing
Agreement and of the Seller under the Mortgage Loan Purchase Agreement,
including, without limitation, any obligation to make advances in respect of
delinquent payments as required by a Sub-Servicing Agreement, or to purchase a
Mortgage Loan on account of missing or defective documentation or on account of
a breach of a representation, warranty or covenant, as described in Section
2.03(a). Such enforcement, including, without limitation, the legal prosecution
of claims, termination of Sub-Servicing Agreements, and the pursuit of other
appropriate remedies, shall be in such form and carried out to such an extent
and at such time as the Master Servicer, in its good faith business judgment,
would require were it the owner of the related Mortgage Loans. The Master
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement, to the extent, if any, that such recovery exceeds all amounts due
in respect of the related Mortgage Loans, or (ii) from a specific recovery of
costs, expenses or attorneys' fees against the party against whom such
enforcement is directed. Enforcement of the Mortgage Loan Purchase Agreement
against the Seller shall be effected by the Master Servicer to the extent it is
not the Seller, and otherwise by the Trustee, in accordance with the foregoing
provisions of this paragraph.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement. In the event of termination of any
Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed
simultaneously by the Master Servicer without any act or deed on the part of
such Sub-Servicer or the Master Servicer, and the Master Servicer either shall
service directly the related Mortgage Loans or shall enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.02.
Any Sub-Servicing Agreement shall include the provision that
such agreement may be immediately terminated by the Trustee without fee, in
accordance with the terms of this Agreement, in the event that the Master
Servicer shall, for any reason, no longer be the Master Servicer (including
termination due to a Master Servicer Event of Default).
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement or the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer or reference to actions taken through a Sub-Servicer
or otherwise, the Master Servicer shall remain obligated and primarily liable to
the Trustee and the Certificateholders for the servicing and administering of
the Mortgage Loans in accordance with the provisions of Section 3.01 without
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diminution of such obligation or liability by virtue of such Sub-Servicing
Agreements or arrangements or by virtue of indemnification from the Sub-Servicer
and to the same extent and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the Mortgage Loans. The Master
Servicer shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Master Servicer by such Sub-Servicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Master Servicer alone, and the Trustee and Certificateholders shall not be
deemed parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the Sub-Servicer except as set forth in Section
3.06. The Master Servicer shall be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to this Agreement is sufficient to pay such fees.
SECTION 3.06. Assumption or Termination of Sub-Servicing
Agreements by Trustee.
In the event the Master Servicer shall for any reason no
longer be the master servicer (including by reason of the occurrence of a Master
Servicer Event of Default), the Trustee or its designee shall thereupon assume
all of the rights and obligations of the Master Servicer under each
Sub-Servicing Agreement that the Master Servicer may have entered into, unless
the Trustee elects to terminate any Sub-Servicing Agreement in accordance with
its terms as provided in Section 3.03. Upon such assumption, the Trustee, its
designee or the successor servicer for the Trustee appointed pursuant to Section
7.02 shall be deemed, subject to Section 3.03, to have assumed all of the Master
Servicer's interest therein and to have replaced the Master Servicer as a party
to each Sub-Servicing Agreement to the same extent as if each Sub-Servicing
Agreement had been assigned to the assuming party, except that (i) the Master
Servicer shall not thereby be relieved of any liability or obligations under any
Sub-Servicing Agreement that arose before it ceased to be the Master Servicer
and (ii) none of the Trustee, its designee or any successor Master Servicer
shall be deemed to have assumed any liability or obligation of the Master
Servicer that arose before it ceased to be the Master Servicer.
The Master Servicer at its expense shall, upon request of the
Trustee, deliver to the assuming party all documents and records relating to
each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by or on behalf of it, and otherwise
use its best efforts to effect the orderly and efficient transfer of the Sub-
Servicing Agreements to the assuming party.
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SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any applicable insurance policies, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. Consistent with
the foregoing, the Master Servicer may in its discretion (i) waive any late
payment charge or, if applicable, any penalty interest, or (ii) extend the due
dates for the Monthly Payments due on a Mortgage Note for a period of not
greater than 180 days; provided, however, that any extension pursuant to clause
(ii) above shall not affect the amortization schedule of any Mortgage Loan for
purposes of any computation hereunder, except as provided below. In the event of
any such arrangement pursuant to clause (ii) above, the Master Servicer shall
make timely advances on such Mortgage Loan during such extension pursuant to
Section 4.03 and in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangement. Notwithstanding
the foregoing, in the event that any Mortgage Loan is in default or, in the
judgment of the Master Servicer, such default is reasonably foreseeable, the
Master Servicer, consistent with the standards set forth in Section 3.01, may
also waive, modify or vary any term of such Mortgage Loan (including
modifications that would change the Mortgage Rate, forgive the payment of
principal or interest or extend the final maturity date of such Mortgage Loan),
accept payment from the related Mortgagor of an amount less than the Stated
Principal Balance in final satisfaction of such Mortgage Loan (such payment, a
"Short Pay-off"), or consent to the postponement of strict compliance with any
such term or otherwise grant indulgence to any Mortgagor.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage
Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
comply with all requirements of this Agreement relating to the Collection
Account. The Sub-Servicer shall deposit in the clearing account in which it
customarily deposits payments and collections on mortgage loans in connection
with its mortgage loan servicing activities on a daily basis, and in no event
more than one Business Day after the Sub- Servicer's receipt thereof, all
proceeds of Mortgage Loans received by the Sub-Servicer less its servicing
compensation to the extent permitted by the Sub-Servicing Agreement, and shall
thereafter deposit such amounts in the Sub-Servicing Account, in no event more
than two Business Days after the receipt of such amounts. The Sub-Servicer shall
thereafter deposit such proceeds in the Collection Account or remit such
proceeds to the Master Servicer for deposit in the Collection Account not later
than two Business Days after the deposit of such amounts in the Sub- Servicing
Account. For purposes of this Agreement, the Master Servicer shall be deemed to
have received payments on the Mortgage Loans when the Sub-Servicer receives such
payments.
SECTION 3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts.
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The Master Servicer shall establish and maintain, or cause to
be established and maintained, one or more accounts (the "Servicing Accounts"),
into which all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, hazard insurance premiums
and comparable items for the account of the Mortgagors ("Escrow Payments") shall
be deposited and retained. Servicing Accounts shall be Eligible Accounts. The
Master Servicer shall deposit in the clearing account in which it customarily
deposits payments and collections on mortgage loans in connection with its
mortgage loan servicing activities on a daily basis, and in no event more than
one Business Day after the Master Servicer's receipt thereof, all Escrow
Payments collected on account of the Mortgage Loans and shall thereafter deposit
such Escrow Payments in the Servicing Accounts, in no event more than two
Business Days after the receipt of such Escrow Payments, all Escrow Payments
collected on account of the Mortgage Loans for the purpose of effecting the
timely payment of any such items as required under the terms of this Agreement.
Withdrawals of amounts from a Servicing Account may be made only to (i) effect
timely payment of taxes, assessments, hazard insurance premiums, and comparable
items; (ii) reimburse the Master Servicer (or a Sub-Servicer to the extent
provided in the related Sub-Servicing Agreement) out of related collections for
any advances made pursuant to Section 3.01 (with respect to taxes and
assessments) and Section 3.14 (with respect to hazard insurance); (iii) refund
to Mortgagors any sums as may be determined to be overages; (iv) pay interest,
if required and as described below, to Mortgagors on balances in the Servicing
Account; or (v) clear and terminate the Servicing Account at the termination of
the Master Servicer's obligations and responsibilities in respect of the
Mortgage Loans under this Agreement in accordance with Article IX. As part of
its servicing duties, the Master Servicer or Sub-Servicers shall pay to the
Mortgagors interest on funds in the Servicing Accounts, to the extent required
by law and, to the extent that interest earned on funds in the Servicing
Accounts is insufficient, to pay such interest from its or their own funds,
without any reimbursement therefor.
SECTION 3.10. Collection Account and Distribution Account.
(a) On behalf of the Trust Fund, the Master Servicer shall
establish and maintain, or cause to be established and maintained, one or more
accounts (such account or accounts, the "Collection Account"), held in trust for
the benefit of the Trustee and the Certificateholders. On behalf of the Trust
Fund, the Master Servicer shall deposit or cause to be deposited in the clearing
account in which it customarily deposits payments and collections on mortgage
loans in connection with its mortgage loan servicing activities on a daily
basis, and in no event more than one Business Day after the Master Servicer's
receipt thereof, and shall thereafter deposit in the Collection Account, in no
event more than two Business Days after the Master Servicer's receipt thereof,
as and when received or as otherwise required hereunder, the following payments
and collections received or made by it subsequent to the Cut-off Date with
respect to the Initial Mortgage Loans, or Subsequent Cut-off Date with respect
to the Subsequent Mortgage Loans (other than in respect of principal or interest
on the related Mortgage Loans due on or before the Cut-off Date or Subsequent
Cut-Off Date, as applicable), or payments (other than Principal Prepayments)
received by it on or prior to the Cut-off Date or Subsequent Cut-Off Date, as
applicable, but allocable to a Due Period subsequent thereto:
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(i) all payments on account of principal, including
Principal Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the
related Servicing Fee) on each Mortgage Loan;
(iii) all Insurance Proceeds and Liquidation Proceeds
(other than proceeds collected in respect of any particular
REO Property and amounts paid in connection with a purchase of
Mortgage Loans and REO Properties pursuant to Section 9.01);
(iv) any amounts required to be deposited pursuant to
Section 3.12 in connection with any losses realized on
Permitted Investments with respect to funds held in the
Collection Account;
(v) any amounts required to be deposited by the Master
Servicer pursuant to the second paragraph of Section 3.14(a)
in respect of any blanket policy deductibles;
(vi) all proceeds of any Mortgage Loan repurchased or
purchased in accordance with Section 2.03 or Section 9.01;
(vii) all amounts required to be deposited in
connection with shortfalls in principal amount of Qualified
Substitute Mortgage Loans pursuant to Section 2.03; and
(viii) all Prepayment Charges collected by the Master
Servicer in connection with the Principal Prepayment of any of
the Mortgage Loans.
The foregoing requirements for deposit in the Collection
Accounts shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of late payment
charges, modification or assumption fees, or insufficient funds charges need not
be deposited by the Master Servicer in the Collection Account and may be
retained by the Master Servicer as additional compensation. In the event the
Master Servicer shall deposit in the Collection Account any amount not required
to be deposited therein, it may at any time withdraw such amount from the
Collection Account, any provision herein to the contrary notwithstanding.
(b) On behalf of the Trust Fund, the Trustee shall establish
and maintain one or more accounts (such account or accounts, the "Distribution
Account"), held in trust for the benefit of the Certificateholders. On behalf of
the Trust Fund, the Master Servicer shall deliver to the Trustee in immediately
available funds for deposit in the Distribution Account on or before
__________________ time (i) on the Master Servicer Remittance Date, that portion
of the Available Distribution Amount (calculated without regard to the
references in clause (2) of the definition thereof to amounts that may be
withdrawn from the Distribution Account) for the
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related Distribution Date then on deposit in the Collection Account and the
amount of all Prepayment Charges collected by the Master Servicer in connection
with the Principal Prepayment of any of the Mortgage Loans then on deposit in
the Collection Account, and (ii) on each Business Day as of the commencement of
which the balance on deposit in the Collection Account exceeds $____________
following any withdrawals pursuant to the next succeeding sentence, the amount
of such excess, but only if the Collection Account constitutes an Eligible
Account solely pursuant to clause (ii) of the definition of "Eligible Account."
If the balance on deposit in the Collection Account exceeds $_________ as of the
commencement of business on any Business Day and the Collection Account
constitutes an Eligible Account solely pursuant to clause (ii) of the definition
of "Eligible Account," the Master Servicer shall, on or before 3:00 p.m. New
York time on such Business Day, withdraw from the Collection Account any and all
amounts payable or reimbursable to the Depositor, the Master Servicer, the
Trustee, the Seller or any Sub-Servicer pursuant to Section 3.11 and shall pay
such amounts to the Persons entitled thereto.
(c) Funds in the Collection Account and the Distribution
Account may be invested in Permitted Investments in accordance with the
provisions set forth in Section 3.12. The Master Servicer shall give notice to
the Trustee of the location of the Collection Account maintained by it when
established and prior to any change thereof. The Trustee shall give notice to
the Master Servicer and the Depositor of the location of the Distribution
Account when established and prior to any change thereof.
(d) Funds held in the Collection Account at any time may be
delivered by the Master Servicer to the Trustee for deposit in an account (which
may be the Distribution Account and must satisfy the standards for the
Distribution Account as set forth in the definition thereof) and for all
purposes of this Agreement shall be deemed to be a part of the Collection
Account; provided, however, that the Trustee shall have the sole authority to
withdraw any funds held pursuant to this subsection (d). In the event the Master
Servicer shall deliver to the Trustee for deposit in the Distribution Account
any amount not required to be deposited therein, it may at any time request that
the Trustee withdraw such amount from the Distribution Account and remit to it
any such amount, any provision herein to the contrary notwithstanding. In
addition, the Master Servicer shall deliver to the Trustee from time to time for
deposit, and the Trustee shall so deposit, in the Distribution Account:
(i) any P&I Advances, as required pursuant to Section
4.03;
(ii) any amounts required to be deposited pursuant to
Section 3.23(d) or (f) in connection with any REO Property;
(iii) any amounts to be paid in connection with a
purchase of Mortgage Loans and REO Properties pursuant to
Section 9.01;
(iv) any amounts required to be deposited pursuant to
Section 3.24 in connection with any Prepayment Interest
Shortfall; and
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(v) any Stayed Funds, as soon as permitted by the
federal bankruptcy court having jurisdiction in such matters.
(e) Promptly upon receipt of any Stayed Funds, whether from
the Master Servicer, a trustee in bankruptcy, federal bankruptcy court or other
source, the Trustee shall deposit such funds in the Distribution Account,
subject to withdrawal thereof pursuant to Section
7.02(b) or as otherwise permitted hereunder.
(f) The Master Servicer shall deposit in the Collection
Account or Distribution Account, as the case may be, any amounts required to be
deposited pursuant to Section 3.12(b) in connection with losses realized on
Permitted Investments with respect to funds held in the
Collection Account or Distribution Account, respectively.
SECTION 3.11. Withdrawals from the Collection Account and
Distribution Account.
(a) The Master Servicer shall, from time to time, make
withdrawals from the Collection Account for any of the following purposes or as
described in Section 4.03:
(i) to remit to the Trustee for deposit in the
Distribution Account the amounts required to be so remitted
pursuant to Section 3.10(b) or permitted to be so remitted
pursuant to the first sentence of Section 3.10(d);
(ii) subject to Section 3.16(d), to reimburse the Master
Servicer for P&I Advances, but only to the extent of amounts
received which represent Late Collections (net of the related
Servicing Fees) of Monthly Payments on Mortgage Loans with
respect to which such P&I Advances were made in accordance
with the provisions of Section 4.03;
(iii) subject to Section 3.16(d), to pay the Master
Servicer or any Sub- Servicer (a) any unpaid Servicing Fees,
(b) any unreimbursed Servicing Advances with respect to each
Mortgage Loan, but only to the extent of any Late Collections,
Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan, and (c) any Nonrecoverable
Servicing Advances with respect to the final liquidation of a
Mortgage Loan, but only to the extent that Late Collections,
Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan are insufficient to reimburse
the Master Servicer or any Sub- Servicer for Servicing
Advances;
(iv) to pay to the Master Servicer as servicing
compensation (in addition to the Servicing Fee) on the Master
Servicer Remittance Date any interest or investment income
earned on funds deposited in the Collection Account;
(v) to pay to the Master Servicer, the Depositor or the
Seller, as the case may be, with respect to each Mortgage Loan
that has previously been
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purchased or replaced pursuant to Section 2.03 or Section
3.16(c) all amounts received thereon subsequent to the date of
purchase or substitution, as the case may be;
(vi) to reimburse the Master Servicer for any P&I
Advance previously made which the Master Servicer has
determined to be a Nonrecoverable P&I Advance in accordance
with the provisions of Section 4.03;
(vii) to reimburse the Master Servicer or the Depositor
for expenses incurred by or reimbursable to the Master
Servicer or the Depositor, as the case may be, pursuant to
Section 6.03;
(viii) to reimburse the Master Servicer or the Trustee, as
the case may be, for expenses reasonably incurred in
connection with any breach or defect giving rise to the
purchase obligation under Section 2.03 or Section 2.04 of this
Agreement, including any expenses arising out of the
enforcement of the purchase obligation;
(ix) to pay, or to reimburse the Master Servicer for
Servicing Advances in respect of, expenses incurred in
connection with any Mortgage Loan pursuant to Section 3.16(b);
and
(x) to clear and terminate the Collection Account
pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection
Account,
to the extent held by or on behalf of it, pursuant to subclauses (ii), (iii),
(iv), (v), (vi), (viii) and (ix) above. The Master Servicer shall provide
written notification to the Trustee, on or prior to the next succeeding Master
Servicer Remittance Date, upon making any withdrawals from the Collection
Account pursuant to subclauses (vi) and (vii) above; provided that an Officer's
Certificate in the form described under Section 4.03(d) shall suffice for such
written notification to the Trustee in respect hereof.
(b) The Trustee shall, from time to time, make withdrawals
from the Distribution Account, for any of the following purposes, without
priority:
(i) to make distributions to Certificateholders in
accordance with Section 4.01;
(ii) to pay to itself amounts to which it is entitled
pursuant to Section 8.05;
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(iii) to pay to the Master Servicer on each Distribution
Date as servicing compensation any interest or investment
income earned on funds deposited in the Distribution Account
pursuant to Section 3.12(b);
(iv) to reimburse itself pursuant to Section 7.02;
(v) to pay any amounts in respect of taxes pursuant to
Section 10.01(g)(iii); and
(vi) to clear and terminate the Distribution Account
pursuant to Section 9.01.
SECTION 3.12. Investment of Funds in the Interest Coverage
Account, Collection Account and the Distribution
Account.
(a) The Master Servicer may direct any depository institution
maintaining the Interest Coverage Account, the Collection Account and the
Distribution Account (each, for purposes of this Section 3.12, an "Investment
Account") to invest the funds in such Investment Account in one or more
Permitted Investments bearing interest or sold at a discount, and maturing,
unless payable on demand, (i) no later than the Business Day immediately
preceding the date on which such funds are required to be withdrawn from such
account pursuant to this Agreement, if a Person other than the Trustee is the
obligor thereon, and (ii) no later than the date on which such funds are
required to be withdrawn from such account pursuant to this Agreement, if the
Trustee is the obligor thereon. All such Permitted Investments shall be held to
maturity, unless payable on demand. Any investment of funds in an Investment
Account shall be made in the name of the Trustee (in its capacity as such) or in
the name of a nominee of the Trustee. The Trustee shall be entitled to sole
possession (except with respect to investment direction of funds held in the
Interest Coverage Account, the Collection Account and the Distribution Account
and any income and gain realized thereon) over each such investment, and any
certificate or other instrument evidencing any such investment shall be
delivered directly to the Trustee or its agent, together with any document of
transfer necessary to transfer title to such investment to the Trustee or its
nominee. In the event amounts on deposit in an Investment Account are at any
time invested in a Permitted Investment payable on demand, the Trustee shall:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on
the last day such Permitted Investment may otherwise
mature hereunder in an amount equal to the lesser of
(1) all amounts then payable thereunder and (2) the
amount required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly
upon determination by a Responsible Officer of the
Trustee that such Permitted Investment would not
constitute a Permitted Investment in respect of funds
thereafter on deposit in the Investment Account.
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(b) All income and gain realized from the investment of funds
deposited in the Interest Coverage Account, the Collection Account, the
Distribution Account and any REO Account held by or on behalf of the Master
Servicer shall be for the benefit of the Master Servicer and shall be subject to
its withdrawal in accordance with Section 3.11 or Section 3.23, as applicable,
or withdrawal by the Trustee in accordance with Section 3.11 or Section 3.25, as
applicable. The Master Servicer shall deposit in the Interest Coverage Account,
the Collection Account, the Distribution Account or any REO Account, as
applicable, the amount of any loss of principal incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon
realization of such loss.
(c) Except as otherwise expressly provided in this Agreement,
if any default occurs in the making of a payment due under any Permitted
Investment, or if a default occurs in any other performance required under any
Permitted Investment, the Trustee may and, subject to Section 8.01 and Section
8.02(v), upon the request of the Holders of Certificates representing more than
50% of the Voting Rights allocated to any Class of Certificates, shall take such
action as may be appropriate to enforce such payment or performance, including
the institution and prosecution of appropriate proceedings.
SECTION 3.13. [intentionally omitted]
SECTION 3.14. Maintenance of Hazard Insurance and Errors and
Omissions and Fidelity Coverage.
(a) The Master Servicer shall cause to be maintained for each
Mortgage Loan fire insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the lesser of the current
principal balance of such Mortgage Loan and the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis, in each case in an amount not less than
such amount as is necessary to avoid the application of any coinsurance clause
contained in the related hazard insurance policy. The Master Servicer shall also
cause to be maintained fire insurance with extended coverage on each REO
Property in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements which are a part of such property and (ii)
the outstanding principal balance of the related Mortgage Loan at the time it
became an REO Property, plus accrued interest at the Mortgage Rate and related
Servicing Advances. The Master Servicer will comply in the performance of this
Agreement with all reasonable rules and requirements of each insurer under any
such hazard policies. Any amounts to be collected by the Master Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the property subject to the related Mortgage or amounts to be released to the
Mortgagor in accordance with the procedures that the Master Servicer would
follow in servicing loans held for its own account, subject to the terms and
conditions of the related Mortgage and Mortgage Note) shall be deposited in the
Collection Account, subject to withdrawal pursuant to Section 3.11, if received
in respect of a Mortgage Loan, or in the REO Account, subject to withdrawal
pursuant to Section 3.23, if received in respect of an REO Property. Any cost
incurred by the Master Servicer in maintaining any such insurance shall not, for
the purpose of calculating distributions to Certificateholders, be added to the
unpaid principal balance of the related
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Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit.
It is understood and agreed that no earthquake or other additional insurance is
to be required of any Mortgagor other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. If the Mortgaged Property or REO Property is at any time
in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards and flood insurance has been
made available, the Master Servicer will cause to be maintained a flood
insurance policy in respect thereof. Such flood insurance shall be in an amount
equal to the lesser of (i) the unpaid principal balance of the related Mortgage
Loan and (ii) the maximum amount of such insurance available for the related
Mortgaged Property under the national flood insurance program (assuming that the
area in which such Mortgaged Property is located is participating in such
program).
In the event that the Master Servicer shall obtain and
maintain a blanket policy with an insurer having a General Policy Rating of A:X
or better in Best's Key Rating Guide (or such other rating that is comparable to
such rating) insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first two sentences of this Section 3.14, it being understood and agreed
that such policy may contain a deductible clause, in which case the Master
Servicer shall, in the event that there shall not have been maintained on the
related Mortgaged Property or REO Property a policy complying with the first two
sentences of this Section 3.14, and there shall have been one or more losses
which would have been covered by such policy, deposit to the Collection Account
from its own funds the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Master Servicer agrees to
prepare and present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy in a timely fashion in accordance with the
terms of such policy.
(b) The Master Servicer shall keep in force during the term of
this Agreement a policy or policies of insurance covering errors and omissions
for failure in the performance of the Master Servicer's obligations under this
Agreement, which policy or policies shall be in such form and amount that would
meet the requirements of Fannie Mae or Freddie Mac if it were the purchaser of
the Mortgage Loans, unless the Master Servicer has obtained a waiver of such
requirements from Fannie Mae or Freddie Mac. The Master Servicer shall also
maintain a fidelity bond in the form and amount that would meet the requirements
of Fannie Mae or Freddie Mac, unless the Master Servicer has obtained a waiver
of such requirements from Fannie Mae or Freddie Mac. The Master Servicer shall
be deemed to have complied with this provision if an Affiliate of the Master
Servicer has such errors and omissions and fidelity bond coverage and, by the
terms of such insurance policy or fidelity bond, the coverage afforded
thereunder extends to the Master Servicer. Any such errors and omissions policy
and fidelity bond shall by its terms not be cancelable without thirty days'
prior written notice to the Trustee. The Master Servicer shall also cause each
Sub-Servicer to maintain a policy of insurance covering errors and omissions and
a fidelity bond which would meet such requirements.
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SECTION 3.15. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
The Master Servicer will, to the extent it has knowledge of
any conveyance or prospective conveyance of any Mortgaged Property by any
Mortgagor (whether by absolute conveyance or by contract of sale, and whether or
not the Mortgagor remains or is to remain liable under the Mortgage Note and/or
the Mortgage), exercise its rights to accelerate the maturity of such Mortgage
Loan under the "due-on-sale" clause, if any, applicable thereto; provided,
however, that the Master Servicer shall not be required to take such action if
in its sole business judgment the Master Servicer believes it is not in the best
interests of the Trust Fund and shall not exercise any such rights if prohibited
by law from doing so. If the Master Servicer reasonably believes it is unable
under applicable law to enforce such "due-on-sale" clause, or if any of the
other conditions set forth in the proviso to the preceding sentence apply, the
Master Servicer will enter into an assumption and modification agreement from or
with the person to whom such property has been conveyed or is proposed to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, to the extent permitted by applicable state law, the Mortgagor remains
liable thereon. The Master Servicer is also authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
the Mortgagor and becomes liable under the Mortgage Note, provided that no such
substitution shall be effective unless such person satisfies the underwriting
criteria of the Master Servicer and has a credit risk rating at least equal to
that of the original Mortgagor. In connection with any assumption or
substitution, the Master Servicer shall apply such underwriting standards and
follow such practices and procedures as shall be normal and usual in its general
mortgage servicing activities and as it applies to other mortgage loans owned
solely by it. The Master Servicer shall not take or enter into any assumption
and modification agreement, however, unless (to the extent practicable in the
circumstances) it shall have received confirmation, in writing, of the continued
effectiveness of any applicable hazard insurance policy. Any fee collected by
the Master Servicer in respect of an assumption, modification or substitution of
liability agreement shall be retained by the Master Servicer as additional
servicing compensation. In connection with any such assumption, no material term
of the Mortgage Note (including but not limited to the related Mortgage Rate and
the amount of the Monthly Payment) may be amended or modified, except as
otherwise required pursuant to the terms thereof. The Master Servicer shall
notify the Trustee that any such substitution, modification or assumption
agreement has been completed by forwarding to the Trustee the executed original
of such substitution, modification or assumption agreement, which document shall
be added to the related Mortgage File and shall, for all purposes, be considered
a part of such Mortgage File to the same extent as all other documents and
instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Mortgage Loan by operation of law or by the terms of the
Mortgage Note or any assumption which the Master Servicer may be restricted by
law from preventing, for any reason whatever. For purposes of this Section 3.15,
the term
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"assumption" is deemed to also include a sale (of the Mortgaged Property)
subject to the Mortgage that is not accompanied by an assumption or substitution
of liability agreement.
SECTION 3.16. Realization Upon Defaulted Mortgage Loans.
(a) The Master Servicer shall use its best efforts, consistent
with Accepted Servicing Practices, to foreclose upon or otherwise comparably
convert the ownership of properties securing such of the Mortgage Loans as come
into and continue in default and as to which no satisfactory arrangements can be
made for collection of delinquent payments pursuant to Section 3.07. The Master
Servicer shall be responsible for all costs and expenses incurred by it in any
such proceedings; provided, however, that such costs and expenses will be
recoverable as Servicing Advances by the Master Servicer as contemplated in
Section 3.11 and Section 3.23. The foregoing is subject to the provision that,
in any case in which Mortgaged Property shall have suffered damage from an
Uninsured Cause, the Master Servicer shall not be required to expend its own
funds toward the restoration of such property unless it shall determine in its
discretion that such restoration will increase the proceeds of liquidation of
the related Mortgage Loan after reimbursement to itself for such expenses.
(b) Notwithstanding the foregoing provisions of this Section
3.16 or any other provision of this Agreement, with respect to any Mortgage Loan
as to which the Master Servicer has received actual notice of, or has actual
knowledge of, the presence of any toxic or hazardous substance on the related
Mortgaged Property, the Master Servicer shall not, on behalf of the Trustee,
either (i) obtain title to such Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any
other action with respect to, such Mortgaged Property, if, as a result of any
such action, the Trustee, the Trust Fund or the Certificateholders would be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Master Servicer has
also previously determined, based on its reasonable judgment and a report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:
(1) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, that it would be in
the best economic interest of the Trust Fund to take such
actions as are necessary to bring the Mortgaged Property into
compliance therewith; and
(2) there are no circumstances present at such
Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials for which investigation,
testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or
regulation, or that if any such materials are present for
which such action could be required, that it would be in the
best economic interest of the Trust Fund to take such actions
with respect to the affected Mortgaged Property.
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The cost of the environmental audit report contemplated by
this Section 3.16 shall be advanced by the Master Servicer, subject to the
Master Servicer's right to be reimbursed therefor from the Collection Account as
provided in Section 3.11(a)(ix), such right of reimbursement being prior to the
rights of Certificateholders to receive any amount in the Collection Account
received in respect of the affected Mortgage Loan or other Mortgage Loans.
If the Master Servicer determines, as described above, that it
is in the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of the Trust Fund; provided that any amounts disbursed by the
Master Servicer pursuant to this Section 3.16(b) shall constitute Servicing
Advances, subject to Section 4.03(d). The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Master Servicer,
subject to the Master Servicer's right to be reimbursed therefor from the
Collection Account as provided in Section 3.11(a)(iii) and (a)(ix), such right
of reimbursement being prior to the rights of Certificateholders to receive any
amount in the Collection Account received in respect of the affected Mortgage
Loan or other Mortgage Loans.
(c) The Master Servicer may at its option purchase from REMIC
I any Mortgage Loan that is 90 days or more delinquent, which the Master
Servicer determines in good faith will otherwise become subject to foreclosure
proceedings (evidence of such determination to be delivered in writing to the
Trustee prior to purchase), at a price equal to the Purchase
Price;
provided, however, that the Master Servicer shall purchase any such Mortgage
Loans on the basis of delinquency, purchasing the most delinquent Mortgage Loans
first. The Purchase Price for any Mortgage Loan purchased hereunder shall be
deposited in the Collection Account, and the Trustee, upon receipt of written
certification from the Master Servicer of such deposit, shall release or cause
to be released to the Master Servicer the related Mortgage File and shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as the Master Servicer shall furnish and as shall be necessary
to vest in the Master Servicer title to any Mortgage Loan released pursuant
hereto.
(d) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan,
will be applied in the following order of priority: FIRST, to reimburse the
Master Servicer or any Sub-Servicer for any related unreimbursed Servicing
Advances and P&I Advances, pursuant to Section 3.11(a)(ii) or (a)(iii); SECOND,
to accrued and unpaid interest on the Mortgage Loan, to the date of the Final
Recovery Determination, or to the Due Date prior to the Distribution Date on
which such amounts are to be distributed if not in connection with a Final
Recovery Determination; and THIRD, as a recovery of principal of the Mortgage
Loan. If the amount of the recovery so allocated to interest is less than the
full amount of accrued and unpaid interest due on such Mortgage Loan, the amount
of such recovery will be allocated by the Master Servicer as follows: FIRST, to
unpaid Servicing Fees; and SECOND, to the balance of the interest then due and
owing. The portion of the recovery so allocated to unpaid
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Servicing Fees shall be reimbursed to the Master Servicer or any Sub-Servicer
pursuant to Section 3.11(a)(iii).
SECTION 3.17. Trustee to Cooperate; Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the
receipt by the Master Servicer of a notification that payment in full shall be
escrowed in a manner customary for such purposes, the Master Servicer will
immediately notify or cause to be notified the Trustee by a certification in the
form of Exhibit E-2 (which certification shall include a statement to the effect
that all amounts received or to be received in connection with such payment
which are required to be deposited in the Collection Account pursuant to Section
3.10 have been or will be so deposited) of a Servicing Officer and shall request
delivery to it of the Mortgage File. Upon receipt of such certification and
request, the Trustee shall promptly release the related Mortgage File to the
Master Servicer. No expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Collection
Account or the Distribution Account.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any insurance policy relating to the Mortgage Loans, the Trustee shall, upon any
request made by or on behalf of the Master Servicer and delivery to the Trustee
of a Request for Release in the form of Exhibit E-l, release the related
Mortgage File to the Master Servicer, and the Trustee shall, at the direction of
the Master Servicer, execute such documents as shall be necessary to the
prosecution of any such proceedings. Such Request for Release shall obligate the
Master Servicer to return each and every document previously requested from the
Mortgage File to the Trustee when the need therefor by the Master Servicer no
longer exists, unless the Mortgage Loan has been liquidated and the Liquidation
Proceeds relating to the Mortgage Loan have been deposited in the Collection
Account or the Mortgage File or such document has been delivered to an attorney,
or to a public trustee or other public official as required by law, for purposes
of initiating or pursuing legal action or other proceedings for the foreclosure
of the Mortgaged Property either judicially or non-judicially, and the Master
Servicer has delivered, or caused to be delivered, to the Trustee an additional
Request for Release certifying as to such liquidation or action or proceedings.
Upon the request of the Trustee, the Master Servicer shall provide notice to the
Trustee of the name and address of the Person to which such Mortgage File or
such document was delivered and the purpose or purposes of such delivery. Upon
receipt of a certificate of a Servicing Officer stating that such Mortgage Loan
was liquidated and that all amounts received or to be received in connection
with such liquidation that are required to be deposited into the Collection
Account have been so deposited, or that such Mortgage Loan has become an REO
Property, any outstanding Requests for Release with respect to such Mortgage
Loan shall be released by the Trustee to the Master Servicer or its designee.
(c) Upon written certification of a Servicing Officer, the
Trustee shall execute and deliver to the Master Servicer or the Sub-Servicer, as
the case may be, any court pleadings, requests for trustee's sale or other
documents necessary to the foreclosure or trustee's sale in respect of a
Mortgaged Property or to any legal action brought to obtain judgment against any
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Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment,
or to enforce any other remedies or rights provided by the Mortgage Note or
Mortgage or otherwise available at law or in equity. Each such certification
shall include a request that such pleadings or documents be executed by the
Trustee and a statement as to the reason such documents or pleadings are
required and that the execution and delivery thereof by the Trustee will not
invalidate or otherwise affect the lien of the Mortgage, except for the
termination of such a lien upon completion of the foreclosure or trustee's sale.
SECTION 3.18. Servicing Compensation.
As compensation for the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to the Servicing Fee with
respect to each Mortgage Loan payable solely from payments of interest in
respect of such Mortgage Loan, subject to Section 3.24. In addition, the Master
Servicer shall be entitled to recover unpaid Servicing Fees out of Insurance
Proceeds or Liquidation Proceeds to the extent permitted by Section 3.11(a)(iii)
and out of amounts derived from the operation and sale of an REO Property to the
extent permitted by Section 3.23. The right to receive the Servicing Fee may not
be transferred in whole or in part except in connection with the transfer of all
of the Master Servicer's responsibilities and obligations under this Agreement;
provided, however, that the Master Servicer may pay from the Servicing Fee any
amounts due to a Sub-Servicer pursuant to a Sub-Servicing Agreement entered into
under Section 3.02.
Additional servicing compensation in the form of assumption or
modification fees, late payment charges, insufficient funds charges or otherwise
(subject to Section 3.24 and other than Prepayment Charges) shall be retained by
the Master Servicer only to the extent such fees or charges are received by the
Master Servicer. The Master Servicer shall also be entitled pursuant to Section
3.11(a)(iv) to withdraw from the Collection Account, pursuant to Section 3.11 to
be paid by the Trustee from the Distribution Account and pursuant to Section
3.23(b) to withdraw from any REO Account, as additional servicing compensation,
interest or other income earned on deposits therein, subject to Section 3.12 and
Section 3.24. The Master Servicer shall be required to pay all expenses incurred
by it in connection with its servicing activities hereunder (including premiums
for the insurance required by Section 3.14, to the extent such premiums are not
paid by the related Mortgagors or by a Sub-Servicer, servicing compensation of
each Sub- Servicer, and to the extent provided herein in Section 8.05, the fees
and expenses of the Trustee) and shall not be entitled to reimbursement therefor
except as specifically provided herein.
SECTION 3.19. Reports to the Trustee; Collection Account
Statements.
Not later than twenty days after each Distribution Date, the
Master Servicer shall forward to the Trustee and the Depositor the most current
available bank statement for the Collection Account. Copies of such statement
shall be provided by the Trustee to any Certificateholder and to any Person
identified to the Trustee as a prospective transferee of a Certificate, upon
request at the expense of the requesting party, provided such statement is
delivered by the Master Servicer to the Trustee.
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SECTION 3.20. Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the
Depositor not later than 90 days following the end of the fiscal year of the
Master Servicer, which as of the Closing Date ends on the last day in December,
an Officers' Certificate stating, as to each signatory thereof, that (i) a
review of the activities of the Master Servicer during the preceding year and of
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Master Servicer has fulfilled all of its obligations under this Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Copies of any such statement shall be provided by the
Trustee to any Certificateholder and to any Person identified to the Trustee as
a prospective transferee of a Certificate, upon request at the expense of the
requesting party, provided such statement is delivered by the Master Servicer to
the Trustee.
SECTION 3.21. Independent Public Accountants' Servicing
Report.
Not later than 90 days following the end of each fiscal year
of the Master Servicer, the Master Servicer, at its expense, shall cause a
nationally recognized firm of independent certified public accountants to
furnish to the Master Servicer a report stating that (i) it has obtained a
letter of representation regarding certain matters from the management of the
Master Servicer which includes an assertion that the Master Servicer has
complied with certain minimum residential mortgage loan servicing standards,
identified in the Uniform Single Attestation Program for Mortgage Bankers
established by the Mortgage Bankers Association of America, with respect to the
servicing of residential mortgage loans during the most recently completed
fiscal year and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that may be
appropriate. In rendering its report such firm may rely, as to matters relating
to the direct servicing of residential mortgage loans by Sub-Servicers, upon
comparable reports of firms of independent certified public accountants rendered
on the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
Immediately upon receipt of such report, the Master Servicer shall furnish a
copy of such report to the Trustee and each Rating Agency. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon request
at the Master Servicer's expense, provided that such statement is delivered by
the Master Servicer to the Trustee.
SECTION 3.22. Access to Certain Documentation.
The Master Servicer shall provide to the Office of Thrift
Supervision, the FDIC, and any other federal or state banking or insurance
regulatory authority that may exercise authority over any Certificateholder,
access to the documentation regarding the Mortgage Loans required by applicable
laws and regulations. Such access shall be afforded without charge, but only
upon reasonable request and during normal business hours at the offices of the
Master Servicer designated by it. In addition, access to the documentation
regarding the Mortgage Loans will be
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provided to any Certificateholder, the Trustee and to any Person identified to
the Master Servicer as a prospective transferee of a Certificate, upon
reasonable request during normal business hours at the offices of the Master
Servicer designated by it at the expense of the Person requesting such access.
SECTION 3.23. Title, Management and Disposition of REO
Property.
(a) The deed or certificate of sale of any REO Property shall
be taken in the name of the Trustee, or its nominee, in trust for the benefit of
the Certificateholders. The Master Servicer, on behalf of REMIC I, shall either
sell any REO Property within three years after REMIC I acquires ownership of
such REO Property for purposes of Section 860G(a)(8) of the Code or request from
the Internal Revenue Service, no later than 60 days before the day on which the
three-year grace period would otherwise expire, an extension of the three-year
grace period, unless the Master Servicer shall have delivered to the Trustee an
Opinion of Counsel, addressed to the Trustee and the Depositor, to the effect
that the holding by REMIC I of such REO Property subsequent to three years after
its acquisition will not result in the imposition on REMIC I, REMIC II or REMIC
III of taxes on "prohibited transactions" thereof, as defined in Section 860F of
the Code, or cause any of REMIC I, REMIC II or REMIC III to fail to qualify as a
REMIC under Federal law at any time that any Certificates are outstanding. The
Master Servicer shall manage, conserve, protect and operate each REO Property
for the Certificateholders solely for the purpose of its prompt disposition and
sale in a manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
result in the receipt by REMIC I, REMIC II or REMIC III of any "income from non-
permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code, or
any "net income from foreclosure property" which is subject to taxation under
the REMIC Provisions.
(b) The Master Servicer shall segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets and shall establish and
maintain, or cause to be established and maintained, with respect to REO
Properties an account held in trust for the Trustee for the benefit of the
Certificateholders (the "REO Account"), which shall be an Eligible Account. The
Master Servicer shall be permitted to allow the Collection Account to serve as
the REO Account, subject to separate ledgers for each REO Property. The Master
Servicer shall be entitled to retain or withdraw any interest income paid on
funds deposited in the REO Account.
(c) The Master Servicer shall have full power and authority,
subject only to the specific requirements and prohibitions of this Agreement, to
do any and all things in connection with any REO Property as are consistent with
the manner in which the Master Servicer manages and operates similar property
owned by the Master Servicer or any of its Affiliates, all on such terms and for
such period as the Master Servicer deems to be in the best interests of
Certificateholders. In connection therewith, the Master Servicer shall deposit,
or cause to be deposited in the clearing account in which it customarily
deposits payments and collections on mortgage loans in connection with its
mortgage loan servicing activities on a daily basis, and in no event more than
one Business Day after the Master Servicer's receipt thereof, and shall
thereafter deposit in the REO Account, in no event more than two Business Days
after the Master
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Servicer's receipt thereof, all revenues received by it with respect to an REO
Property and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of such REO Property including, without limitation:
(i) all insurance premiums due and payable in respect
of such REO Property;
(ii) all real estate taxes and assessments in respect
of such REO Property that may result in the imposition of a
lien thereon; and
(iii) all costs and expenses necessary to maintain such
REO Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such
REO
Property, the Master Servicer shall advance from its own funds such amount as is
necessary for such purposes if, but only if, the Master Servicer would make such
advances if the Master Servicer owned the REO Property and if in the Master
Servicer's judgment, the payment of such amounts will be recoverable from the
rental or sale of the REO Property.
Notwithstanding the foregoing, neither the Master Servicer nor
the Trustee shall:
(i) authorize the Trust Fund to enter into, renew or
extend any New Lease with respect to any REO Property, if the
New Lease by its terms will give rise to any income that does
not constitute Rents from Real Property;
(ii) authorize any amount to be received or accrued
under any New Lease other than amounts that will constitute
Rents from Real Property;
(iii) authorize any construction on any REO Property,
other than the completion of a building or other improvement
thereon, and then only if more than ten percent of the
construction of such building or other improvement was
completed before default on the related Mortgage Loan became
imminent, all within the meaning of Section 856(e)(4)(B) of
the Code; or
(iv) authorize any Person to Directly Operate any REO
Property on any date more than 90 days after its date of
acquisition by the Trust Fund;
unless, in any such case, the Master Servicer has obtained an Opinion of
Counsel, provided to the Trustee, to the effect that such action will not cause
such REO Property to fail to qualify as "foreclosure property" within the
meaning of Section 860G(a)(8) of the Code at any time that it is held by REMIC
I, in which case the Master Servicer may take such actions as are specified in
such Opinion of Counsel.
The Master Servicer may contract with any Independent
Contractor for the operation and management of any REO Property, provided that:
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(i) the terms and conditions of any such contract shall
not be inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor pay
all costs and expenses incurred in connection with the
operation and management of such REO Property, including those
listed above and remit all related revenues (net of such costs
and expenses) to the Master Servicer as soon as practicable,
but in no event later than thirty days following the receipt
thereof by such Independent Contractor;
(iii) none of the provisions of this Section 3.23(c)
relating to any such contract or to actions taken through any
such Independent Contractor shall be deemed to relieve the
Master Servicer of any of its duties and obligations to the
Trustee on behalf of the Certificateholders with respect to
the operation and management of any such REO Property; and
(iv) the Master Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all
duties and obligations in connection with the operation and
management of such REO Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, irrespective of whether
the Master Servicer's compensation pursuant to Section 3.18 is sufficient to pay
such fees; provided, however, that to the extent that any payments made by such
Independent Contractor would constitute Servicing Advances if made by the Master
Servicer, such amounts shall be reimbursable as Servicing Advances made by the
Master Servicer.
(d) In addition to the withdrawals permitted under Section
3.23(c), the Master Servicer may from time to time make withdrawals from the REO
Account for any REO Property: (i) to pay itself or any Sub-Servicer unpaid
Servicing Fees in respect of the related Mortgage Loan; and (ii) to reimburse
itself or any Sub-Servicer for unreimbursed Servicing Advances and P&I Advances
made in respect of such REO Property or the related Mortgage Loan. On the Master
Servicer Remittance Date, the Master Servicer shall withdraw from each REO
Account maintained by it and deposit into the Distribution Account in accordance
with Section 3.10(d)(ii), for distribution on the related Distribution Date in
accordance with Section 4.01, the income from the related REO Property received
during the prior calendar month, net of any withdrawals made pursuant to Section
3.23(c) or this Section 3.23(d).
(e) Subject to the time constraints set forth in Section
3.23(a), each REO Disposition shall be carried out by the Master Servicer at
such price and upon such terms and conditions as the Master Servicer shall deem
necessary or advisable, as shall be normal and usual in its Accepted Servicing
Practices.
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(f) The proceeds from the REO Disposition, net of any amount
required by law to be remitted to the Mortgagor under the related Mortgage Loan
and net of any payment or reimbursement to the Master Servicer or any
Sub-Servicer as provided above, shall be deposited in the Distribution Account
in accordance with Section 3.10(d)(ii) on the Master Servicer Remittance Date in
the month following the receipt thereof for distribution on the related
Distribution Date in accordance with Section 4.01. Any REO Disposition shall be
for cash only (unless changes in the REMIC Provisions made subsequent to the
Startup Day allow a sale for other consideration).
(g) The Master Servicer shall file information returns with
respect to the receipt of mortgage interest received in a trade or business,
reports of foreclosures and abandonments of any Mortgaged Property and
cancellation of indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code, respectively. Such
reports shall be in form and substance sufficient to meet the reporting
requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
SECTION 3.24. Obligations of the Master Servicer in Respect of
Prepayment Interest Shortfalls.
The Master Servicer shall deliver to the Trustee for deposit
into the Distribution Account on or before 3:00 p.m. New York time on the Master
Servicer Remittance Date from its own funds an amount equal to the lesser of (i)
the aggregate of the Prepayment Interest Shortfalls for the related Distribution
Date resulting from full or partial Principal Prepayments during the related
Prepayment Period and (ii) the aggregate Servicing Fee for the related
Prepayment Period. Any amounts paid by the Master Servicer pursuant to this
Section 3.24 shall not be reimbursed by REMIC I.
SECTION 3.25. Obligations of the Master Servicer in Respect of
Mortgage Rates and Monthly Payments.
In the event that a shortfall in any collection on or
liability with respect to any Mortgage Loan results from or is attributable to
adjustments to Mortgage Rates, Monthly Payments or Stated Principal Balances
that were made by the Master Servicer in a manner not consistent with the terms
of the related Mortgage Note and this Agreement, the Master Servicer, upon
discovery or receipt of notice thereof, immediately shall deliver to the Trustee
for deposit in the Distribution Account from its own funds the amount of any
such shortfall and shall indemnify and hold harmless the Trust Fund, the
Trustee, the Depositor and any successor master servicer in respect of any such
liability. Such indemnities shall survive the termination or discharge of this
Agreement. Notwithstanding the foregoing, this Section 3.26 shall not limit the
ability of the Master Servicer to seek recovery of any such amounts from the
related Mortgagor under the terms of the related Mortgage Note, as permitted by
law.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
(a)(1)(A) On each Distribution Date, the following amounts, in
the following order of priority, shall be distributed by REMIC I to REMIC II on
account of the REMIC I Regular Interests or withdrawn from the Distribution
Account and distributed to the holders of the
Class R-I Certificates, as the case may be:
(i) to the Holders of REMIC I Regular Interests (other
than REMIC I Regular Interest I-LTP), in an amount equal to
(A) the Uncertificated Interest for such Distribution Date,
plus (B) any amounts in respect thereof remaining unpaid from
previous Distribution Dates. On the first Distribution Date,
the Class R-I Certificates shall be entitled to interest
accrued on its Certificate Principal Balance at the related
Pass-Through Rate. Amounts payable as Uncertificated Interest
in respect of REMIC I Regular Interest I-LT6 shall be reduced
when the REMIC I Overcollateralized Amount is less than the
REMIC I Required Overcollateralized Amount, by the lesser of
(x) the amount of such difference and (y) the Maximum I-LT6
Uncertificated Interest Deferral Amount; and
(ii) (x) on the first Distribution Date, to the Holders
of the Class R-I Certificates, the Certificate Principal
Balance thereof and (y) on each Distribution Date, to the
Holders of REMIC I Regular Interests, in an amount equal to
the remainder of the Available Distribution Amount for such
Distribution Date after the distributions made pursuant to
clauses (i) and (ii)(x) above, allocated as follows (except as
provided below):
(a) to the Holders of the REMIC I Regular
Interest I-LT1, _________% of such remainder;
(b) to the Holders of the REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC
I Regular Interest I-LT4 and REMIC I Regular Interest
I-LT5, ________% of such remainder, in the same
proportion as principal payments are allocated to the
Corresponding
Certificates;
(c) to the Holders of the REMIC I Regular
Interest I-LT6, ________% of such remainder; and
(d) to the Holders of the REMIC I Regular
Interest I-LTP, $100 on the Distribution Date
immediately following the expiration of the latest
Prepayment Charge term as identified on the Mortgage
Loan Schedule or any Distribution Date thereafter;
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provided, however, that _________% and _______% of any principal payments that
are attributable to a Overcollateralization Reduction Amount shall be allocated
to Holders of the REMIC I Regular Interest I-LT1 and REMIC I Regular Interest
I-LT6, respectively.
(B) On each Distribution Date, the following amounts shall be
distributed by REMIC II to REMIC III on account of the REMIC II Regular
Interests (other than REMIC II Regular Interest II-LTP) or withdrawn from the
Distribution Account and distributed to the holders of the Class R-II
Certificates, as the case may be:
(i) on the first Distribution Date, the Class R-II
Certificates shall be entitled to (x) interest accrued on its
Certificate Principal Balance at the related Pass-Through Rate
and (y) principal in an amount equal to the Certificate
Principal Balance thereof;
(ii) any amounts paid as either Uncertificated Interest
paid or accrued to the REMIC I Regular Interests (other than
REMIC I Regular Interest I-LTP) shall be deemed to have been
paid to the related Uncertificated Corresponding Component in
REMIC II in accordance with the REMIC II Remittance Rates; and
(iii) any amounts paid as principal on the REMIC I
Regular Interests shall be deemed to have been paid to the
related Uncertificated Corresponding Component in REMIC II in
accordance with the same priorities and conditions.
(2) On each Distribution Date, the Trustee shall withdraw from
the Distribution Account an amount equal to the Interest Remittance Amount and
distribute to the Certificateholders the following amounts, in the following
order of priority:
(i) (x) on the first Distribution Date, to the Holders
of the Class R-III Certificates and (y) to the Holders of the
Class A Certificates, an amount equal to the Senior Interest
Distribution Amount;
(ii) to the extent of the Interest Remittance Amount
remaining after distribution of the Senior Interest
Distribution Amount, to the Holders of the Class M-1
Certificates, an amount equal to the Interest Distribution
Amount allocable to the Class M-1 Certificates;
(iii) to the extent of the Interest Remittance Amount
remaining after distribution of the Senior Interest
Distribution Amount and the Interest Distribution Amount
allocable to the Class M-1 Certificates, to the Holders of the
Class M-2 Certificates, an amount equal to the Interest
Distribution Amount allocable to the Class M-2 Certificates;
and
(iv) to the extent of the Interest Remittance Amount
remaining after distribution of the Senior Interest
Distribution Amount and the Interest Distribution Amounts
allocable to the Class M-1 Certificates and the Class M-2
Certificates, to
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the Holders of the Class M-3 Certificates, an amount equal to
the Interest Distribution Amount allocable to the Class M-3
Certificates.
(3) On each Distribution Date, the Trustee shall withdraw from
the Distribution Account an amount equal to the Principal Distribution Amount
and distribute to the Certificateholders the following amounts, in the following
order of priority:
(i) On each Distribution Date (a) prior to the Stepdown
Date or (b) on which a Trigger Event is in effect, the
Principal Distribution Amount shall be distributed in the
following order of priority;
FIRST, on the first Distribution Date, to the Holders
of the Class R-III Certificates, the Certificate
Principal Balance thereof;
SECOND, to the Holders of the Class A Certificates,
until the Certificate Principal Balance of such Class
has been reduced to zero;
THIRD, to the Holders of the Class M-1 Certificates,
until the Certificate Principal Balance of such Class
has been reduced to zero;
FOURTH, to the Holders of the Class M-2 Certificates,
until the Certificate Principal Balance of such Class
has been reduced to zero; and
FIFTH, to the Holders of the Class M-3 Certificates,
until the Certificate Principal Balance of such Class
has been reduced to zero.
(ii) On each Distribution Date (a) on or after the
Stepdown Date and (b) on which a Trigger Event is not in
effect, the Principal Distribution Amount shall be distributed
in the following order of priority;
FIRST, the lesser of (x) the Principal Distribution
Amount and (y) the Class A Principal Distribution
Amount shall be distributed to the Holders of the
Class A Certificates, until the Certificate Principal
Balance of such Class has been reduced to zero;
SECOND, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the amount
distributed to the Holders of the Class A
Certificates pursuant to clause FIRST above and (y)
the Class M-1 Principal Distribution Amount shall be
distributed to the Holders of the Class M-1
Certificates, until the Certificate Principal Balance
of such Class has been reduced to zero;
THIRD, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the sum of
the amounts distributed to the Holders of the Class A
Certificates pursuant to clause FIRST above and to
the Holders of the Class
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M-1 Certificates pursuant to clause SECOND above and
(y) the Class M-2 Principal Distribution Amount shall
be distributed to the Holders of the Class M-2
Certificates, until the Certificate Principal Balance
of such Class has been reduced to zero; and
FOURTH, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the sum of
the amounts distributed to the Holders of the Class A
Certificates pursuant to clause FIRST above, to the
Holders of the Class M-1 Certificates pursuant to
clause SECOND above and to the Holders of the Class
M-2 Certificates pursuant to clause THIRD above and
(y) the Class M-3 Principal Distribution Amount shall
be distributed to the Holders of the Class M-3
Certificates, until the Certificate Principal Balance
of such Class has been reduced to zero.
(4) On each Distribution Date, the Net Monthly Excess Cashflow
(or, in the case of clause (i) below, the Net Monthly Excess Cashflow exclusive
of any Overcollateralization Reduction Amount) shall be distributed as follows:
(i) to the Holders of the Class or Classes of
Certificates then entitled to receive distributions
in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or
deemed to have been incurred on the Mortgage Loans,
applied to reduce the Certificate Principal Balance
of such Certificates until the aggregate Certificate
Principal Balance of such Certificates is reduced to
zero;
(ii) to the Holders of the Class or Classes of
Certificates then entitled to receive distributions
in respect of principal, in an amount equal to the
Overcollateralization Increase Amount, applied to
reduce the Certificate Principal Balance of such
Certificates until the aggregate Certificate
Principal Balance of such Certificates is reduced to
zero;
(iii) to the Holders of the Class M-1 Certificates,
in an amount equal to the Interest Carry Forward
Amount (plus accrued interest) allocable to such
Class of Certificates;
(iv) to the Holders of the Class M-2 Certificates, in
an amount equal to the Interest Carry Forward Amount
(plus accrued interest) allocable to such
Class of Certificates;
(v) to the Holders of the Class M-3 Certificates, in
an amount equal to the Interest Carry Forward Amount
(plus accrued interest) allocable to such
Class of Certificates;
(vi) to the Holders of the Class A Certificates, in
an amount equal to the aggregate of any Prepayment
Interest Shortfalls (to the extent not covered
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by payments pursuant to Section 3.24) and any Relief
Act Interest Shortfall allocated to such
Certificates;
(vii) to the Holders of the Class M-1 Certificates,
in an amount equal to the aggregate of any Prepayment
Interest Shortfalls (to the extent not covered by
payments pursuant to Section 3.24) and any Relief Act
Interest Shortfall allocated to such Certificates;
(viii) to the Holders of the Class M-2 Certificates,
in an amount equal to the aggregate of any Prepayment
Interest Shortfalls (to the extent not covered by
payments pursuant to Section 3.24) and any Relief Act
Interest Shortfall allocated to such Certificates;
(ix) to the Holders of the Class M-3 Certificates, in
an amount equal to the aggregate of any Prepayment
Interest Shortfalls (to the extent not covered by
payments pursuant to Section 3.24) and any Relief Act
Interest Shortfall allocated to such Certificates;
(x) to the Holders of the Class CE Certificates the
Interest Distribution Amount and any
Overcollateralization Reduction Amount for such
Distribution Date; and
(xi) to the Holders of the Class R-III Certificates,
any remaining amounts; provided that if such
Distribution Date is the Distribution Date
immediately following the expiration of the latest
Prepayment Charge term as identified on the Mortgage
Loan Schedule or any Distribution Date thereafter,
then any such remaining amounts will be distributed
FIRST, to the Holders of the Class P Certificates,
until the Certificate Principal Balance thereof has
been reduced to zero; and SECOND, to the Holders of
the Class R-III Certificates.
On the Distribution Date immediately following the end of the
Funding Period, the Trustee shall distribute any amounts remaining in the
Pre-Funding Account to the Holders of the Certificates then entitled to
distributions in respect of principal in reduction of the Certificate
Principal Balance of such Certificates.
(b) On each Distribution Date, the Trustee shall withdraw any
amounts then on deposit in the Distribution Account that represent Prepayment
Charges collected by the Master Servicer in connection with the Principal
Prepayment of any of the Mortgage Loans and shall distribute such amounts to the
Holders of the Class P Certificates. Such distributions shall not be applied to
reduce the Certificate Principal Balance of the Class P Certificates.
(c) All distributions made with respect to each Class of
Certificates on each Distribution Date shall be allocated PRO RATA among the
outstanding Certificates in such Class based on their respective Percentage
Interests. Payments in respect of each Class of Certificates
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on each Distribution Date will be made to the Holders of the respective Class of
record on the related Record Date (except as otherwise provided in Section
4.01(e) or Section 9.01 respecting the final distribution on such Class), based
on the aggregate Percentage Interest represented by their respective
Certificates, and shall be made by wire transfer of immediately available funds
to the account of any such Holder at a bank or other entity having appropriate
facilities therefor, if such Holder shall have so notified the Trustee in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date and is the registered owner of Certificates having an
initial aggregate Certificate Principal Balance that is in excess of the lesser
of (i) $5,000,000 or (ii) two-thirds of the initial Certificate Principal
Balance of such Class of Certificates, or otherwise by check mailed by first
class mail to the address of such Holder appearing in the Certificate Register.
The final distribution on each Certificate will be made in like manner, but only
upon presentment and surrender of such Certificate at the Corporate Trust Office
or such other location specified in the notice to Certificateholders of such
final distribution.
Each distribution with respect to a Book-Entry Certificate
shall be paid to the Depository, as Holder thereof, and the Depository shall be
responsible for crediting the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trustee, the Depositor
or the Master Servicer shall have any responsibility therefor except as
otherwise provided by this Agreement or applicable law.
(d) The rights of the Certificateholders to receive
distributions in respect of the Certificates, and all interests of the
Certificateholders in such distributions, shall be as set forth in this
Agreement. Neither the Holders of any Class of Certificates nor the Trustee nor
the Master Servicer shall in any way be responsible or liable to the Holders of
any other Class of Certificates in respect of amounts properly previously
distributed on the Certificates.
(e) Except as otherwise provided in Section 9.01, whenever the
Trustee expects that the final distribution with respect to any Class of
Certificates will be made on the next Distribution Date, the Trustee shall, no
later than three (3) days before the related Distribution Date, mail to each
Holder on such date of such Class of Certificates a notice to the effect that:
(i) the Trustee expects that the final distribution with respect
to such Class of Certificates will be made on such Distribution Date
but only upon presentation and surrender of such Certificates at the
office of the Trustee therein specified, and
(ii) no interest shall accrue on such Certificates from and after
the end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust by
the Trustee and credited to the account of the
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appropriate non-tendering Holder or Holders. If any Certificates as to which
notice has been given pursuant to this Section 4.01(e) shall not have been
surrendered for cancellation within six months after the time specified in such
notice, the Trustee shall mail a second notice to the remaining non-tendering
Certificateholders to surrender their Certificates for cancellation in order to
receive the final distribution with respect thereto. If within one year after
the second notice all such Certificates shall not have been surrendered for
cancellation, the Trustee shall, directly or through an agent, mail a final
notice to the remaining non-tendering Certificateholders concerning surrender of
their Certificates but shall continue to hold any remaining funds for the
benefit of non-tendering Certificateholders. The costs and expenses of
maintaining the funds in trust and of contacting such Certificateholders shall
be paid out of the assets remaining in such trust fund. If within one year after
the final notice any such Certificates shall not have been surrendered for
cancellation, the Trustee shall pay to Salomon Brothers Inc all such amounts,
and all rights of non- tendering Certificateholders in or to such amounts shall
thereupon cease. No interest shall accrue or be payable to any Certificateholder
on any amount held in trust by the Trustee as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 4.01(e). Any such amounts held in trust
by the Trustee shall be held in an Eligible Account and the Trustee may direct
any depository institution maintaining such account to invest the funds in one
or more Permitted Investments. All income and gain realized from the investment
of funds deposited in such accounts held in trust by the Trustee shall be for
the benefit of the Trustee; provided, however, that the Trustee shall deposit in
such account the amount of any loss of principal incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon the
realization of such loss.
(f) Notwithstanding anything to the contrary herein, (i) in no
event shall the Certificate Principal Balance of a Class A Certificate or a
Mezzanine Certificate be reduced more than once in respect of any particular
amount both (a) allocated to such Certificate in respect of Realized Losses
pursuant to Section 4.04 and (b) distributed to the Holder of such Certificate
in reduction of the Certificate Principal Balance thereof pursuant to this
Section 4.01 from Net Monthly Excess Cashflow and (ii) in no event shall the
Uncertificated Balance of a REMIC I Regular Interest be reduced more than once
in respect of any particular amount both (a) allocated to such REMIC I Regular
Interest in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed on such REMIC I Regular Interest in reduction of the Uncertificated
Balance thereof pursuant to this Section 4.01.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date, the Trustee shall prepare and
forward by mail to each Holder of the Regular Certificates, a statement as to
the distributions made on such Distribution
Date setting forth:
(i) the amount of the distribution made on such
Distribution Date to the Holders of the Certificates of each
Class allocable to principal, and the amount of the
distribution made on such Distribution Date to the Holders of
the Class P Certificates allocable to Prepayment Charges;
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(ii) the amount of the distribution made on such
Distribution Date to the Holders of the Certificates of each
Class allocable to interest;
(iii) the aggregate Servicing Fee received by the Master
Servicer during the related Due Period and such other
customary information as the Trustee deems necessary or
desirable, or which a Certificateholder reasonably requests,
to enable Certificateholders to prepare their tax returns;
(iv) the aggregate amount of P&I Advances for such
Distribution Date;
(v) the aggregate Stated Principal Balance of the
Mortgage Loans and any REO Properties as of the close of
business on such Distribution Date;
(vi) the number, aggregate principal balance, weighted
average remaining term to maturity and weighted average
Mortgage Rate of the Mortgage Loans as of the related Due Date
and the number and aggregate principal balance of all
Subsequent Mortgage Loans adding during the preceding Due
Period;
(vii) the number and aggregate unpaid principal balance
of Mortgage Loans (a) delinquent 30 to 59 days, (b) delinquent
60 to 89 days, (c) delinquent 90 or more days, in each case,
as of the last day of the preceding calendar month, (d) as to
which foreclosure proceedings have been commenced and (e) with
respect to which the related Mortgagor has filed for
protection under applicable bankruptcy laws, with respect to
whom bankruptcy proceedings are pending or with respect to who
bankruptcy protection is in force;
(viii) with respect to any Mortgage Loan that became an
REO Property during the preceding calendar month, the loan
number of such Mortgage Loan, the unpaid principal balance and
the Stated Principal Balance of such Mortgage Loan
as of the date it became an REO Property;
(ix) the book value of any REO Property as of the close
of business on the last Business Day of the calendar month
preceding the Distribution Date;
(x) the aggregate amount of Principal Prepayments made
during the related Prepayment Period;
(xi) the aggregate amount of Realized Losses incurred
during the related Prepayment Period (or, in the case of
Bankruptcy Losses allocable to interest, during the related
Due Period), separately identifying whether such Realized
Losses constituted Fraud Losses, Special Hazard Losses,
Bankruptcy Losses or Extraordinary Losses;
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(xii) the aggregate amount of extraordinary trust fund
expenses withdrawn from the Collection Account or the
Distribution Account for such Distribution Date;
(xiii) the aggregate Certificate Principal Balance of each
Class of Certificates, after giving effect to the
distributions, and allocations of Realized Losses, made on
such Distribution Date, separately identifying any reduction
thereof due to allocations of Realized Losses;
(xiv) the Certificate Factor for each such Class of
Certificates applicable to such Distribution Date;
(xv) the Interest Distribution Amount in respect of the
Class A Certificates, the Mezzanine Certificates and the Class
CE Certificates for such Distribution Date and the Interest
Carry Forward Amount, if any, with respect to the Class A
Certificates and the Mezzanine Certificates on such
Distribution Date, and in the case of the Class A
Certificates, the Mezzanine Certificates and the Class CE
Certificates, separately identifying any reduction thereof due
to allocations of Realized Losses, Prepayment Interest
Shortfalls and Relief Act Interest Shortfalls;
(xvi) the aggregate amount of any Prepayment Interest
Shortfall for such Distribution Date, to the extent not
covered by payments by the Master Servicer pursuant to Section
3.24;
(xvii) the aggregate amount of Relief Act Interest
Shortfalls for such Distribution Date;
(xviii) the then-applicable Bankruptcy Amount, Fraud
Loss Amount and Special Hazard Amount;
(xix) the Required Overcollateralized Amount and the
Credit Enhancement Percentage for such Distribution Date;
(xx) the Overcollateralization Increase Amount, if any,
for such Distribution Date;
(xxi) the Overcollateralization Reduction Amount, if
any, for such Distribution Date;
(xxii) the respective Pass-Through Rates applicable to
the Class A Certificates, the Mezzanine Certificates and the
Class CE Certificates for such Distribution Date and the
Pass-Through Rate applicable to the Class A Certificates and
the Mezzanine Certificates for the immediately succeeding
Distribution Date;
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(xxiii) the amount on deposit in the Pre-Funding
Account and the Interest Coverage Account; and
(xxiv) for the distribution occurring on the
Distribution Date immediately following the end of the Funding
Period, the current balance on deposit in the Pre- Funding
Account that has not been used to purchase Subsequent Mortgage
Loans and that is being distributed to the Class A
Certificateholders as a mandatory prepayment of principal, if
any, on such Distribution Date.
In the case of information furnished pursuant to subclauses
(i) through (iii) above, the amounts shall be expressed as a dollar amount per
Single Certificate of the relevant Class.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each Person who at any time during
the calendar year was a Holder of a Regular Certificate a statement containing
the information set forth in subclauses (i) through (iii) above, aggregated for
such calendar year or applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as from time to
time are in force.
On each Distribution Date, the Trustee shall forward to the
Depositor, to each Holder of a Residual Certificate and to the Master Servicer,
a copy of the reports forwarded to the Regular Certificateholders on such
Distribution Date and a statement setting forth the amounts, if any, actually
distributed with respect to the Residual Certificates, respectively, on such
Distribution Date.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each Person who at any time during
the calendar year was a Holder of a Residual Certificate a statement setting
forth the amount, if any, actually distributed with respect to the Residual
Certificates, as appropriate, aggregated for such calendar year or applicable
portion thereof during which such Person was a Certificateholder.
The Trustee shall, upon request, furnish to each
Certificateholder, during the term of this Agreement, such periodic, special, or
other reports or information, whether or not provided for herein, as shall be
reasonable with respect to the Certificateholder, or otherwise with respect to
the purposes of this Agreement, all such reports or information to be provided
at the expense of the Certificateholder in accordance with such reasonable and
explicit instructions and directions as the Certificateholder may provide. For
purposes of this Section 4.02, the Trustee's duties are limited to the extent
that the Trustee receives timely reports as required from the Master Servicer.
On each Distribution Date the Trustee shall provide Bloomberg
Financial Markets, L.P. ("Bloomberg") cusip level factors for each class of
Certificates as of such Distribution Date, using a format and media mutually
acceptable to the Trustee and Bloomberg.
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SECTION 4.03. Remittance Reports; P&I Advances.
(a) On the Business Day following each Determination Date, the
Master Servicer shall deliver to the Trustee by telecopy (or by such other means
as the Master Servicer and the Trustee may agree from time to time) a Remittance
Report with respect to the related Distribution Date. On the same date, the
Master Servicer shall forward to the Trustee by overnight mail a computer
readable magnetic tape containing the information set forth in such Remittance
Report with respect to the related Distribution Date. Such Remittance Report
will include (i) the amount of P&I Advances to be made by the Master Servicer in
respect of the related Distribution Date, the aggregate amount of P&I Advances
outstanding after giving effect to such P&I Advances, and the aggregate amount
of Nonrecoverable P&I Advances in respect of such Distribution Date and (ii)
such other information with respect to the Mortgage Loans as the Trustee may
reasonably require to perform the calculations necessary to make the
distributions contemplated by Section 4.01 and to prepare the statements to
Certificateholders contemplated by Section 4.02. The Trustee shall not be
responsible (except with regard to any information regarding the Prepayment
Charges to the extent set forth below) to recompute, recalculate or verify any
information provided to it by the Master Servicer. Notwithstanding the
foregoing, in connection with any Principal Prepayment on any Mortgage Loan
listed on Schedule 2 hereto, the Trustee shall verify that the related
Prepayment Charge was delivered to the Trustee for deposit in the Distribution
Account in the amount set forth on such Schedule 2 or that such Prepayment
Charge was waived in accordance with the terms hereof.
(b) The amount of P&I Advances to be made by the Master
Servicer for any Distribution Date shall equal, subject to Section 4.03(d), the
sum of (i) the aggregate amount of Monthly Payments (with each interest portion
thereof net of the related Servicing Fee), due on the related Due Date in
respect of the Mortgage Loans, which Monthly Payments were delinquent as of the
close of business on the related Determination Date and (ii) with respect to
each REO Property, which REO Property was acquired during or prior to the
related Prepayment Period and as to which REO Property an REO Disposition did
not occur during the related Prepayment Period, an amount equal to the excess,
if any, of the REO Imputed Interest on such REO Property for the most recently
ended calendar month, over the net income from such REO Property transferred to
the Distribution Account pursuant to Section 3.23 for distribution on such
Distribution Date.
On or before __________________ time on the Master Servicer
Remittance Date, the Master Servicer shall remit in immediately available funds
to the Trustee for deposit in the Distribution Account an amount equal to the
aggregate amount of P&I Advances, if any, to be made in respect of the Mortgage
Loans and REO Properties for the related Distribution Date either (i) from its
own funds or (ii) from the Collection Account, to the extent of funds held
therein for future distribution (in which case it will cause to be made an
appropriate entry in the records of Collection Account that amounts held for
future distribution have been, as permitted by this Section 4.03, used by the
Master Servicer in discharge of any such P&I Advance) or (iii) in the form of
any combination of (i) and (ii) aggregating the total amount of P&I Advances to
be made by the Master Servicer with respect to the Mortgage Loans and REO
Properties. Any amounts held for future distribution and so used shall be
appropriately reflected in the Master Servicer's
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records and replaced by the Master Servicer by deposit in the Collection Account
on or before any future Master Servicer Remittance Date to the extent that the
Available Distribution Amount for the related Distribution Date (determined
without regard to P&I Advances to be made on the Master Servicer Remittance
Date) shall be less than the total amount that would be distributed to the
Classes of Certificateholders pursuant to Section 4.01 on such Distribution Date
if such amounts held for future distributions had not been so used to make P&I
Advances. The Trustee will provide notice to the Master Servicer by telecopy by
the close of business on the third Business Day prior to the Distribution Date
in the event that the amount remitted by the Master Servicer to the Trustee on
such date is less than the P&I Advances required to be made by the Master
Servicer for the related Distribution Date.
(c) The obligation of the Master Servicer to make such P&I
Advances is mandatory, notwithstanding any other provision of this Agreement but
subject to (d) below, and, with respect to any Mortgage Loan or REO Property,
shall continue until a Final Recovery Determination in connection therewith or
the removal thereof from the Trust Fund pursuant to any applicable provision of
this Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no P&I
Advance or Servicing Advance shall be required to be made hereunder by the
Master Servicer if such P&I Advance or Servicing Advance would, if made,
constitute a Nonrecoverable P&I Advance or Nonrecoverable Servicing Advance,
respectively. The determination by the Master Servicer that it has made a
Nonrecoverable P&I Advance or a Nonrecoverable Servicing Advance or that any
proposed P&I Advance or Servicing Advance, if made, would constitute a
Nonrecoverable P&I Advance or Nonrecoverable Servicing Advance, respectively,
shall be evidenced by an Officers' Certificate of the Master Servicer delivered
to the Depositor and the Trustee.
SECTION 4.04. Allocation of Realized Losses.
(a) Prior to each Determination Date, the Master Servicer
shall determine as to each Mortgage Loan and REO Property: (i) the total amount
of Realized Losses, if any, incurred in connection with any Final Recovery
Determinations made during the related Prepayment Period; (ii) whether and the
extent to which such Realized Losses constituted Fraud Losses, Bankruptcy
Losses, Special Hazard Losses or Extraordinary Losses; and (iii) the respective
portions of such Realized Losses allocable to interest and allocable to
principal. Prior to each Determination Date, the Master Servicer shall also
determine as to each Mortgage Loan: (i) the total amount of Realized Losses, if
any, incurred in connection with any Deficient Valuations made during the
related Prepayment Period; and (ii) the total amount of Realized Losses, if any,
incurred in connection with Debt Service Reductions in respect of Monthly
Payments due during the related Due Period. The information described in the two
preceding sentences that is to be supplied by the Master Servicer shall be
evidenced by an Officers' Certificate delivered to the Trustee by the Master
Servicer prior to the Determination Date immediately following the end of (i) in
the case of Bankruptcy Losses allocable to interest, the Due Period during which
any such Realized Loss was incurred, and (ii) in the case of all other Realized
Losses, the Prepayment Period during which any such Realized Loss was incurred.
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(b) All Realized Losses on the Mortgage Loans allocated to
REMIC II Regular Interest LT1 pursuant to Section 4.04(c), other than Excess
Losses, on the Mortgage Loans shall be allocated by the Trustee on each
Distribution Date as follows: first, to Net Monthly Excess Cashflow; second, to
the Class CE Certificates, until the Certificate Principal Balance thereof has
been reduced to zero; third, to the Class M-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; fourth, to the
Class M-2 Certificates, until the Certificate Principal Balance thereof has been
reduced to zero; and fifth, to the Class M-1 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero. All Realized Losses to be
allocated to the Certificate Principal Balances of all Classes on any
Distribution Date shall be so allocated after the actual distributions to be
made on such date as provided above. All references above to the Certificate
Principal Balance of any Class of Certificates shall be to the Certificate
Principal Balance of such Class immediately prior to the relevant Distribution
Date, before reduction thereof by any Realized Losses, in each case to be
allocated to such Class of Certificates, on such Distribution Date.
Notwithstanding anything to the contrary herein, for purposes
of determining the Special Hazard Amount, the Fraud Loss Amount and the
Bankruptcy Amount as of any date of determination, Special Hazard Losses, Fraud
Losses and Bankruptcy Losses paid from Net Monthly Excess Cashflow which would
otherwise have been payable to the holders of the Class CE Certificates shall be
deemed to have been allocated to the Class CE Certificates. Any Excess Losses
allocated to REMIC II Regular Interest LT1 pursuant to Section 4.04(c) will be
allocated among the Class A Certificates, the Mezzanine Certificates and the
Class CE Certificates on a PRO RATA basis. Any allocation of Realized Losses to
a Class A Certificate or a Mezzanine Certificate on any Distribution Date shall
be made by reducing the Certificate Principal Balance thereof by the amount so
allocated, or in the case of a Class CE Certificate, by reducing the amount
otherwise payable in respect thereof pursuant to Section 4.01(a)(4)(x). No
allocations of any Realized Losses shall be made to the Certificate Principal
Balance of the Class P Certificates.
As used herein, an allocation of a Realized Loss on a "PRO
RATA basis" among two or more specified Classes of Certificates means an
allocation on a PRO RATA basis, among the various Classes so specified, to each
such Class of Certificates on the basis of their then outstanding Certificate
Principal Balances prior to giving effect to distributions to be made on such
Distribution Date. All Realized Losses and all other losses allocated to a Class
of Certificates hereunder will be allocated among the Certificates of such Class
in proportion to the Percentage Interests evidenced thereby.
(c) All Realized Losses on the Mortgage Loans (other than
Excess Losses) shall be allocated by the Trustee on each Distribution Date to
the following REMIC I Regular Interests in the specified percentages, as
follows: first, to Uncertificated Interest payable to the REMIC I Regular
Interest I-LT1 and REMIC I Regular Interest I-LT6 up to an aggregate amount
equal to the REMIC I Interest Loss Allocation Amount, _______% and ______%,
respectively; second, to the Uncertificated Balances of the REMIC I Regular
Interest I-LT1 and REMIC I Regular Interest I-LT6 up to an aggregate amount
equal to the REMIC I Principal Loss Allocation Amount, ______% and _______%,
respectively; third, to the Uncertificated Balances of REMIC I Regular Interest
I-LT1, REMIC I Regular Interest I-LT5 and REMIC I Regular Interest I-LT6,
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_______%, ______% and ____%, respectively, until the Uncertificated Balance of
REMIC I Regular Interest I-LT5 has been reduced to zero; fourth, to the
Uncertificated Balances of REMIC I Regular Interest I-LT1, REMIC I Regular
Interest I-LT4 and REMIC I Regular Interest I-LT6, ______%, _____% and _____%,
respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LT4
has been reduced to zero; and fifth, to the Uncertificated Balances of REMIC I
Regular Interest I-LT1, REMIC I Regular Interest I-LT3 and REMIC I Regular
Interest I-LT6, _______%, _____% and _____%, respectively, until the
Uncertificated Balance of REMIC I Regular Interest I-LT3 has been reduced to
zero. Any Excess Losses will be allocated among the REMIC I Regular Interests
(other than REMIC I Regular Interest I-LTP) on a PRO RATA basis.
(d) All Realized Losses on the REMIC II Regular Interests
shall be allocated by the Trustee on each Distribution Date among the REMIC II
Regular Interests in the proportion that Realized Losses are allocated to the
related Uncertificated Corresponding Component.
As used herein, an allocation of a Realized Loss on a "PRO
RATA basis" among the REMIC I Regular Interests means an allocation on a PRO
RATA basis among the REMIC I Regular Interests on the basis of their then
outstanding Uncertificated Balances, in each case prior to giving effect to
distributions to be made on such Distribution Date.
SECTION 4.05. Compliance with Withholding Requirements .
Notwithstanding any other provision of this Agreement, the
Trustee shall comply with all federal withholding requirements respecting
payments to Certificateholders of interest or original issue discount that the
Trustee reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. In the event the
Trustee does withhold any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall indicate the amount withheld to such
Certificateholders.
SECTION 4.06. Exchange Commission; Additional Information.
Within 15 days after each Distribution Date, the Trustee shall
file with the Commission via the Electronic Data Gathering and Retrieval System,
a Form 8-K with a copy of the statement to Certificateholders for such
Distribution Date as an exhibit thereto. Prior to ________________, the Trustee
shall file a Form 15 Suspension Notification with respect to the Trust Fund, if
applicable. Prior to ____________________, the Trustee shall file a Form 10-K,
substantially in the form attached hereto as Exhibit H, with respect to the
Trust Fund. The Depositor hereby grants to the Trustee a limited power of
attorney to execute and file each such document on behalf of the Depositor. Such
power of attorney shall continue until the earlier of (i) receipt by the Trustee
from the Depositor of written termination of such power of attorney and (ii) the
termination of the Trust Fund. Upon request, the Trustee shall deliver to the
Depositor a copy of any Form 8-K or Form 10-K filed pursuant to this Section
4.06.
SECTION 4.07. Pre-Funding Account.
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(a) No later than the Closing Date, the Trustee shall
establish and maintain a segregated trust account that is an Eligible Account,
which shall be titled "Pre-Funding Account, __________________________, as
trustee for the registered holders of New Century Mortgage Securities, Inc.,
Mortgage Pass-Through Certificates, Series 199_-_____" (the "Pre-Funding
Account"). The Trustee shall, promptly upon receipt, deposit in the Pre-Funding
Account and retain therein the Original Pre-Funded Amount remitted on the
Closing Date to the Trustee by the Depositor. Funds deposited in the Pre-Funding
Account shall be held in trust by the Trustee for the Certificateholders for the
uses and purposes set forth herein.
(b) The Trustee will invest funds deposited in the Pre-Funding
Account in Permitted Investments of the kind described in clause (vi) of the
definition of Permitted Investments with a maturity date no later than the
second Business Day preceding each Distribution Date. For federal income tax
purposes, the Depositor shall be the owner of the Pre- Funding Account and shall
report all items of income, deduction, gain or loss arising therefrom. All
income and gain realized from investment of funds deposited in the Pre-Funding
Account shall be transferred to the Interest Coverage Account on the Business
Day immediately preceding each Distribution Date. The Master Servicer shall
deposit in the Pre-Funding Account the amount of any net loss incurred in
respect of any such Permitted Investment immediately upon realization of such
loss without any right of reimbursement therefor. Prior to the Distribution Date
immediately following the end of the Funding Period or any earlier Subsequent
Transfer Date on which the entire balance of the Original Pre-Funded Amount is
applied to purchase Subsequent Mortgage Loans, the Pre-Funding Account will not
be an asset of any of REMIC I, REMIC II or REMIC III.
(c) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee shall
withdraw from the Pre-Funding Account an amount equal to 100%
of the Stated Principal Balances of the Subsequent Mortgage
Loans transferred and assigned to the Trustee for deposit in
the Mortgage Pool on such Subsequent Transfer Date and pay
such amount to or upon the order of the Depositor upon
satisfaction of the conditions set forth in Section 2.11 with
respect to such transfer and assignment;
(ii) If the amount on deposit in the Pre-Funding Account
has not been reduced to zero during the Funding Period, on the
day immediately following the termination of the Funding
Period, the Trustee shall deposit into the Distribution
Account any amounts remaining in the Pre-Funding Account for
distribution in accordance with the terms hereof;
(iii) To withdraw any amount not required to be deposited
in the Pre- Funding Account or deposited therein in error; and
(iv) To clear and terminate the Pre-Funding Account upon
the earlier to occur of (A) the Distribution Date immediately
following the end of the Funding
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Period and (B) the termination of this Agreement, with any
amounts remaining on deposit therein being paid to the Holders
of the Certificates then entitled to
distributions in respect of principal.
SECTION 4.08. Interest Coverage Account.
(a) No later than the Closing Date, the Trustee shall
establish and maintain a segregated trust account that is an Eligible Account,
which shall be titled "Interest Coverage Account, __________________________, as
trustee for the registered holders of New Century Mortgage Securities, Inc.,
Mortgage Pass-Through Certificates, Series 199___-_____" (the "Interest Coverage
Account"). The Trustee shall, promptly upon receipt, deposit in the Interest
Coverage Account and retain therein the Interest Coverage Amount remitted on the
Closing Date to the Trustee by the Depositor. Funds deposited in the Interest
Coverage Account shall be held in trust by the Trustee for the
Certificateholders for the uses and purposes set forth herein.
(b) For federal income tax purposes, the Depositor shall be
the owner of the Interest Coverage Account and shall report all items of income,
deduction, gain or loss arising therefrom. At no time will the Interest Coverage
Account be an asset of any of REMIC I, REMIC II or REMIC III. All income and
gain realized from investment of funds deposited in the Interest Coverage
Account shall be for the sole and exclusive benefit of the Master Servicer and
shall be remitted by the Trustee to the Master Servicer on the first Business
Day following each Remittance Date. The Master Servicer shall deposit in the
Interest Coverage Account the amount of any net loss incurred in respect of any
such Permitted Investment immediately upon realization of such loss.
(c) With respect to each Distribution Date during the Funding
Period and on the Distribution Date immediately following the end of the Funding
Period, the Trustee shall withdraw from the Interest Coverage Account and
deposit in the Distribution Account an amount, as provided in the related
Remittance Report, equal to (i) 30 days' interest on the Original Pre- Funded
Amount calculated at an annual rate equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in the Trust Fund as of the commencement of
the related Due Period, minus (ii) the sum of (1) any interest payments received
on Subsequent Mortgage Loans during the related Due Period and (2) any P&I
Advance in respect of the interest portion of delinquent Monthly Payments on the
Subsequent Mortgage Loans conveyed to the Trustee during the related Due Period.
(d) Upon the earlier of (i) the Distribution Date immediately
following the end of the Funding Period, (ii) the reduction of the Certificate
Principal Balance of the Class A Certificates and the Mezzanine Certificates to
zero or (iii) the termination of this Agreement in accordance with Section 9.01,
any amount remaining on deposit in the Interest Coverage Account after
distributions pursuant to paragraph (c) above shall be withdrawn by the Trustee
and paid to the Depositor or its designee.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates in the aggregate will represent the
entire beneficial ownership interest in the Mortgage Loans and all other assets
included in REMIC I.
The Certificates will be substantially in the forms annexed
hereto as Exhibits A-1 through A-9. The Certificates of each Class will be
issuable in registered form only, in denominations of authorized Percentage
Interests as described in the definition thereof. Each Certificate will share
ratably in all rights of the related Class.
Upon original issue, the Certificates shall be executed,
authenticated and delivered by the Trustee to or upon the order of the
Depositor. The Certificates shall be executed by manual or facsimile signature
on behalf of the Trustee by an authorized signatory. Certificates bearing the
manual or facsimile signatures of individuals who were at any time the proper
officers of the Trustee shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of such Certificates. No Certificate shall be entitled to any benefit
under this Agreement or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication substantially in the form provided
herein executed by the Trustee by manual signature, and such certificate of
authentication shall be conclusive evidence, and the only evidence, that such
Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
(b) The Class A Certificates and the Mezzanine Certificates
shall initially be issued as one or more Certificates held by the Book-Entry
Custodian or, if appointed to hold such Certificates as provided below, the
Depository and registered in the name of the Depository or its nominee and,
except as provided below, registration of such Certificates may not be
transferred by the Trustee except to another Depository that agrees to hold such
Certificates for the respective Certificate Owners with Ownership Interests
therein. The Certificate Owners shall hold their respective Ownership Interests
in and to such Certificates through the book-entry facilities of the Depository
and, except as provided below, shall not be entitled to definitive, fully
registered Certificates ("Definitive Certificates") in respect of such Ownership
Interests. All transfers by Certificate Owners of their respective Ownership
Interests in the Book-Entry Certificates shall be made in accordance with the
procedures established by the Depository Participant or brokerage firm
representing such Certificate Owner. Each Depository Participant shall only
transfer the Ownership Interests in the Book-Entry Certificates of Certificate
Owners it represents or of brokerage firms for which it acts as agent in
accordance with the Depository's normal procedures. The Trustee is hereby
initially appointed as the Book-Entry Custodian and hereby agrees to act as such
in accordance herewith and in accordance with the agreement that it has with the
Depository authorizing it to act as such. The Book-Entry Custodian may, and, if
it is no longer qualified to act as such, the Book-Entry Custodian shall,
appoint, by a written instrument
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delivered to the Depositor, the Master Servicer and, if the Trustee is not the
Book-Entry Custodian, the Trustee, any other transfer agent (including the
Depository or any successor Depository) to act as Book-Entry Custodian under
such conditions as the predecessor Book-Entry Custodian and the Depository or
any successor Depository may prescribe, provided that the predecessor Book-Entry
Custodian shall not be relieved of any of its duties or responsibilities by
reason of any such appointment of other than the Depository. If the Trustee
resigns or is removed in accordance with the terms hereof, the successor trustee
or, if it so elects, the Depository shall immediately succeed to its
predecessor's duties as Book-Entry Custodian. The Depositor shall have the right
to inspect, and to obtain copies of, any Certificates held as Book-Entry
Certificates by the Book-Entry Custodian.
The Trustee, the Master Servicer and the Depositor may for all
purposes (including the making of payments due on the Book-Entry Certificates)
deal with the Depository as the authorized representative of the Certificate
Owners with respect to the Book-Entry Certificates for the purposes of
exercising the rights of Certificateholders hereunder. The rights of Certificate
Owners with respect to the Book-Entry Certificates shall be limited to those
established by law and agreements between such Certificate Owners and the
Depository Participants and brokerage firms representing such Certificate
Owners. Multiple requests and directions from, and votes of, the Depository as
Holder of the Book-Entry Certificates with respect to any particular matter
shall not be deemed inconsistent if they are made with respect to different
Certificate Owners. The Trustee may establish a reasonable record date in
connection with solicitations of consents from or voting by Certificateholders
and shall give notice to the Depository of such record date.
If (i)(A) the Depositor advises the Trustee in writing that
the Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (B) the Depositor is unable to locate a
qualified successor, (ii) the Depositor at its option advises the Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of a Master Servicer Event of Default, Certificate
Owners representing in the aggregate not less than 51% of the Ownership
Interests of the Book-Entry Certificates advise the Trustee through the
Depository, in writing, that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Certificate Owners, the
Trustee shall notify all Certificate Owners, through the Depository, of the
occurrence of any such event and of the availability of Definitive Certificates
to Certificate Owners requesting the same. Upon surrender to the Trustee of the
Book-Entry Certificates by the Book-Entry Custodian or the Depository, as
applicable, accompanied by registration instructions from the Depository for
registration of transfer, the Trustee shall issue the Definitive Certificates.
Such Definitive Certificates will be issued in minimum denominations of $10,000,
except that any beneficial ownership that was represented by a Book-Entry
Certificate in an amount less than $10,000 immediately prior to the issuance of
a Definitive Certificate shall be issued in a minimum denomination equal to the
amount represented by such Book-Entry Certificate. None of the Depositor, the
Master Servicer or the Trustee shall be liable for any delay in the delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and performed by the Trustee, to
the extent
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applicable with respect to such Definitive Certificates, and the Trustee shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
(a) The Trustee shall cause to be kept at one of the offices
or agencies to be appointed by the Trustee in accordance with the provisions of
Section 8.11 a Certificate Register for the Certificates in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of
Certificates as herein provided.
(b) No transfer of any Class CE Certificate or Class P
Certificate shall be made unless that transfer is made pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), and effective registration or qualification under applicable state
securities laws, or is made in a transaction that does not require such
registration or qualification. In the event that such a transfer of a Class CE
Certificate or Class P Certificate is to be made without registration or
qualification (other than in connection with the initial transfer of any such
Class CE Certificate or Class P Certificate by the Depositor to an affiliate of
the Depositor), the Trustee shall require receipt of: (i) if such transfer is
purportedly being made in reliance upon Rule 144A under the 1933 Act, written
certifications from the Certificateholder desiring to effect the transfer and
from such Certificateholder's prospective transferee, substantially in the forms
attached hereto as Exhibit F-1; and (ii) in all other cases, an Opinion of
Counsel satisfactory to it that such transfer may be made without such
registration or qualification (which Opinion of Counsel shall not be an expense
of the Trust Fund or of the Depositor, the Trustee, the Master Servicer in its
capacity as such or any Sub-Servicer), together with copies of the written
certification(s) of the Certificateholder desiring to effect the transfer and/or
such Certificateholder's prospective transferee upon which such Opinion of
Counsel is based, if any. Neither the Depositor nor the Trustee is obligated to
register or qualify the Class CE Certificates or the Class P Certificates under
the 1933 Act or any other securities laws or to take any action not otherwise
required under this Agreement to permit the transfer of such Certificates
without registration or qualification. Any Certificateholder desiring to effect
the transfer of a Class CE Certificate or a Class P Certificate shall, and does
hereby agree to, indemnify the Trustee, the Depositor and the Master Servicer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.
(c) No transfer of a Mezzanine Certificate, Class CE
Certificate, Class P Certificate or Residual Certificate or any interest therein
shall be made to any Plan subject to ERISA or Section 4975 of the Code, any
Person acting, directly or indirectly, on behalf of any such Plan or any Person
acquiring such Certificates with "Plan Assets" of a Plan within the meaning of
the Department of Labor regulation promulgated at 29 C.F.R. ss. 2510.3-101
("Plan Assets") unless the Depositor, the Trustee and the Master Servicer are
provided with an Opinion of Counsel which establishes to the satisfaction of the
Depositor, the Trustee and the Master Servicer that the purchase of such
Certificates is permissible under applicable law, will not constitute or result
in any prohibited transaction under ERISA or Section 4975 of the Code and will
not subject the Depositor, the Master Servicer, the Trustee or the Trust Fund to
any
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obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code) in addition to those undertaken in this Agreement,
which Opinion of Counsel shall not be an expense of the Depositor, the Master
Servicer, the Trustee or the Trust Fund. In lieu of such Opinion of Counsel, any
prospective Transferee of such Certificates may provide a certification (which
in the case of the Mezzanine Certificates, the Transferee will be deemed to have
represented such certification) in the form of Exhibit G to this Agreement (or
other form acceptable to the Depositor, the Trustee and the Master Servicer),
which the Trustee may rely upon without further inquiry or investigation. An
Opinion of Counsel, any certification or a deemed representation will not be
required in connection with the initial transfer of any such Certificate by the
Depositor to an affiliate of the Depositor (in which case, the Depositor or any
affiliate thereof shall have deemed to have represented that such affiliate is
not a Plan or a Person investing Plan Assets) and the Trustee shall be entitled
to conclusively rely upon a representation (which, upon the request of the
Trustee, shall be a written representation) from the Depositor of the status of
such transferee as an affiliate of the Depositor. In accordance with Section
2.11(b), the Depositor shall obtain a letter, as described in the amendment to
PTCE 91-23 and other similar underwriters exemptions issued by the DOL on July
21, 1997, from an Independent accountant retained by the Depositor, which letter
shall be provided by the Depositor to each Rating Agency and the Trustee,
stating that the characteristics of the Subsequent Mortgage Loans conform to the
characteristics described in Section 2.11(c) and (d).
(d) (i) Each Person who has or who acquires any Ownership
Interest in a Residual Certificate shall be deemed by the acceptance or
acquisition of such Ownership Interest to have agreed to be bound by the
following provisions and to have irrevocably authorized the Trustee or its
designee under clause (iii)(A) below to deliver payments to a Person other than
such Person and to negotiate the terms of any mandatory sale under clause
(iii)(B) below and to execute all instruments of Transfer and to do all other
things necessary in connection with any such sale. The rights of each Person
acquiring any Ownership Interest in a Residual Certificate are expressly subject
to the following provisions:
(A) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall be
a Permitted Transferee and shall promptly notify the
Trustee of any change or impending change in its
status as a Permitted Transferee.
(B) In connection with any proposed Transfer
of any Ownership Interest in a Residual Certificate,
the Trustee shall require delivery to it, and shall
not register the Transfer of any Residual Certificate
until its receipt of, an affidavit and agreement (a
"Transfer Affidavit and Agreement," in the form
attached hereto as Exhibit F-2) from the proposed
Transferee, in form and substance satisfactory to the
Trustee, representing and warranting, among other
things, that such Transferee is a Permitted
Transferee, that it is not acquiring its Ownership
Interest in the Residual Certificate that is the
subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a
Permitted Transferee, that for so long as it retains
its Ownership Interest in a Residual Certificate, it
will endeavor
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to remain a Permitted Transferee, and that it has
reviewed the provisions of this Section 5.02(d) and
agrees to be bound by them.
(C) Notwithstanding the delivery of a
Transfer Affidavit and Agreement by a proposed
Transferee under clause (B) above, if a Responsible
Officer of the Trustee who is assigned to this
transaction has actual knowledge that the proposed
Transferee is not a Permitted Transferee, no Transfer
of an Ownership Interest in a Residual Certificate to
such proposed Transferee shall be effected.
(D) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall
agree (x) to require a transferor affidavit (a
"Transferor Affidavit," in the form attached hereto
as Exhibit F-2) from any other Person to whom such
Person attempts to transfer its Ownership Interest in
a Residual Certificate and (y) not to transfer its
Ownership Interest unless it provides a Transferor
Affidavit (in the form attached hereto as Exhibit
F-2) to the Trustee stating that, among other things,
it has no actual knowledge that such other Person is
not a Permitted Transferee.
(E) Each Person holding or acquiring an
Ownership Interest in a Residual Certificate, by
purchasing an Ownership Interest in such Certificate,
agrees to give the Trustee written notice that it is
a "pass-through interest holder" within the meaning
of temporary Treasury regulation Section
1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Residual Certificate, if it
is, or is holding an Ownership Interest in a Residual
Certificate on behalf of, a "pass-through interest
holder."
(ii) The Trustee will register the Transfer of any
Residual Certificate only if it shall have received the
Transfer Affidavit and Agreement and all of such other
documents as shall have been reasonably required by the
Trustee as a condition to such registration. In addition, no
Transfer of a Residual Certificate shall be made unless the
Trustee shall have received a representation letter from the
Transferee of such Certificate to the effect that such
Transferee is a Permitted Transferee.
(iii) (A) If any purported Transferee shall become a
Holder of a Residual Certificate in violation of the
provisions of this Section 5.02(d), then the last preceding
Permitted Transferee shall be restored, to the extent
permitted by law, to all rights as holder thereof retroactive
to the date of registration of such Transfer of such Residual
Certificate. The Trustee shall be under no liability to any
Person for any registration of Transfer of a Residual
Certificate that is in fact not permitted by this Section
5.02(d) or for making any payments due on such Certificate to
the holder thereof or for taking any other action with respect
to such holder under the provisions of this Agreement.
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(B) If any purported Transferee shall become
a holder of a Residual Certificate in violation of the
restrictions in this Section 5.02(d) and to the extent that
the retroactive restoration of the rights of the holder of
such Residual Certificate as described in clause (iii)(A)
above shall be invalid, illegal or unenforceable, then the
Trustee shall have the right, without notice to the holder or
any prior holder of such Residual Certificate, to sell such
Residual Certificate to a purchaser selected by the Trustee on
such terms as the Trustee may choose. Such purported
Transferee shall promptly endorse and deliver each Residual
Certificate in accordance with the instructions of the
Trustee. Such purchaser may be the Trustee itself or any
Affiliate of the Trustee. The proceeds of such sale, net of
the commissions (which may include commissions payable to the
Trustee or its Affiliates), expenses and taxes due, if any,
will be remitted by the Trustee to such purported Transferee.
The terms and conditions of any sale under this clause
(iii)(B) shall be determined in the sole discretion of the
Trustee, and the Trustee shall not be liable to any Person
having an Ownership Interest in a Residual Certificate as a
result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal
Revenue Service and those Persons specified by the REMIC
Provisions all information necessary to compute any tax
imposed (A) as a result of the Transfer of an Ownership
Interest in a Residual Certificate to any Person who is a
Disqualified Organization, including the information described
in Treasury regulations sections 1.860D- 1(b)(5) and
1.860E-2(a)(5) with respect to the "excess inclusions" of such
Residual Certificate and (B) as a result of any regulated
investment company, real estate investment trust, common trust
fund, partnership, trust, estate or organization described in
Section 1381 of the Code that holds an Ownership Interest in a
Residual Certificate having as among its record holders at any
time any Person which is a Disqualified Organization.
Reasonable compensation for providing such information may be
accepted by the Trustee.
(v) The provisions of this Section 5.02(d) set forth
prior to this subsection (v) may be modified, added to or
eliminated, provided that there shall have been delivered to
the Trustee at the expense of the party seeking to modify, add
to or eliminate any such provision the following:
(A) written notification from each Rating
Agency to the effect that the modification, addition
to or elimination of such provisions will not cause
such Rating Agency to downgrade its then-current
ratings of any Class of Certificates; and
(B) an Opinion of Counsel, in form and
substance satisfactory to the Trustee, to the effect
that such modification of, addition to or elimination
of such provisions will not cause any of REMIC I,
REMIC II or REMIC III to cease to qualify as a REMIC
and will not cause any of REMIC I, REMIC II or REMIC
III, as the case may be, to be subject to
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an entity-level tax caused by the Transfer of any
Residual Certificate to a Person that is not a
Permitted Transferee or a Person other than the
prospective transferee to be subject to a REMIC-tax
caused by the Transfer of a Residual Certificate to a
Person that is not a Permitted Transferee.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at any office or agency of the
Trustee maintained for such purpose pursuant to Section 8.11, the Trustee shall
execute, authenticate and deliver, in the name of the designated Transferee or
Transferees, one or more new Certificates of the same Class of a like aggregate
Percentage Interest.
(f) At the option of the Holder thereof, any Certificate may
be exchanged for other Certificates of the same Class with authorized
denominations and a like aggregate Percentage Interest, upon surrender of such
Certificate to be exchanged at any office or agency of the Trustee maintained
for such purpose pursuant to Section 8.11. Whenever any Certificates are so
surrendered for exchange the Trustee shall execute, authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for transfer or exchange
shall (if so required by the Trustee) be duly endorsed by, or be accompanied by
a written instrument of transfer in the form satisfactory to the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing.
(g) No service charge to the Certificateholders shall be made
for any transfer or exchange of Certificates, but the Trustee may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
(h) All Certificates surrendered for transfer and exchange
shall be canceled and destroyed by the Trustee in accordance with its customary
procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the
Trustee, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Trustee such security or indemnity as may be required by it to save it
harmless, then, in the absence of actual knowledge by the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of the same
Class and of like denomination and Percentage Interest. Upon the issuance of any
new Certificate under this Section, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section shall constitute complete and indefeasible evidence of ownership in
the applicable REMIC created hereunder, as if originally issued, whether or not
the lost, stolen or destroyed Certificate shall be found at any time.
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SECTION 5.04. Persons Deemed Owners.
The Depositor, the Master Servicer, the Trustee and any agent
of any of them may treat the Person in whose name any Certificate is registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.01 and for all other purposes whatsoever, and none of the
Depositor, the Master Servicer, the Trustee or any agent of any of them shall be
affected by notice to the contrary.
SECTION 5.05. Certain Available Information.
On or prior to the date of the first sale of any Class CE
Certificate or Class P Certificate to an Independent third party, the Depositor
shall provide to the Trustee ten copies of any private placement memorandum or
other disclosure document used by the Depositor in connection with the offer and
sale of the Class CE Certificates or Class P Certificates. In addition, if any
such private placement memorandum or disclosure document is revised, amended or
supplemented at any time following the delivery thereof to the Trustee, the
Depositor promptly shall inform the Trustee of such event and shall deliver to
the Trustee ten copies of the private placement memorandum or disclosure
document, as revised, amended or supplemented. The Trustee shall maintain at its
Corporate Trust Office and shall make available free of charge during normal
business hours for review by any Holder of a Certificate or any Person
identified to the Trustee as a prospective transferee of a Certificate,
originals or copies of the following items: (i) in the case of a Holder or
prospective transferee of a Class CE Certificate or Class P Certificate, the
related private placement memorandum or other disclosure document relating to
such Class of Certificates, in the form most recently provided to the Trustee;
and (ii) in all cases, (A) this Agreement and any amendments hereof entered into
pursuant to Section 11.01, (B) all monthly statements required to be delivered
to Certificateholders of the relevant Class pursuant to Section 4.02 since the
Closing Date, and all other notices, reports, statements and written
communications delivered to the Certificateholders of the relevant Class
pursuant to this Agreement since the Closing Date, (C) all certifications
delivered by a Responsible Officer of the Trustee since the Closing Date
pursuant to Section 10.01(h), (D) any and all Officers' Certificates delivered
to the Trustee by the Master Servicer since the Closing Date to evidence the
Master Servicer's determination that any P&I Advance or Servicing Advance was,
or if made, would be a Nonrecoverable P&I Advance or Nonrecoverable Servicing
Advance, respectively, and (E) any and all Officers' Certificates delivered to
the Trustee by the Master Servicer since the Closing Date pursuant to Section
4.04(a). Copies and mailing of any and all of the foregoing items will be
available from the Trustee upon request at the expense of the Person requesting
the same.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Liability of the Depositor and the Master
Servicer.
The Depositor and the Master Servicer each shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
by this Agreement upon them in their respective capacities as Depositor and
Master Servicer and undertaken hereunder by the Depositor
and the Master Servicer herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the
Master Servicer.
Subject to the following paragraph, the Depositor will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the jurisdiction of its incorporation. Subject to the following paragraph,
the Master Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation. The Depositor and the Master Servicer each will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement, the Certificates or any of the
Mortgage Loans and to perform its respective duties under this Agreement.
The Depositor or the Master Servicer may be merged or
consolidated with or into any Person, or transfer all or substantially all of
its assets to any Person, in which case any Person resulting from any merger or
consolidation to which the Depositor or the Master Servicer shall be a party, or
any Person succeeding to the business of the Depositor or the Master Servicer,
shall be the successor of the Depositor or the Master Servicer, as the case may
be, hereunder, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to service mortgage loans on behalf of
Fannie Mae or Freddie Mac; and provided further that the Rating Agencies'
ratings of the Class A Certificates and the Mezzanine Certificates in effect
immediately prior to such merger or consolidation will not be qualified, reduced
or withdrawn as a result thereof (as evidenced by a letter to such effect from
the Rating Agencies).
SECTION 6.03. Limitation on Liability of the Depositor, the
Master Servicer and Others.
None of the Depositor, the Master Servicer or any of the
directors, officers, employees or agents of the Depositor or the Master Servicer
shall be under any liability to the Trust Fund or the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Master Servicer or any such
person against
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any breach of warranties, representations or covenants made herein, or against
any specific liability imposed on the Master Servicer pursuant hereto, or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Master Servicer and any director, officer, employee or agent of the
Depositor or the Master Servicer may rely in good faith on any document of any
kind which, PRIMA FACIE, is properly executed and submitted by any Person
respecting any matters arising hereunder. The Depositor, the Master Servicer and
any director, officer, employee or agent of the Depositor or the Master Servicer
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
relating to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither the Depositor nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action unless such action
is related to its respective duties under this Agreement and, in its opinion,
does not involve it in any expense or liability; provided, however, that each of
the Depositor and the Master Servicer may in its discretion undertake any such
action which it may deem necessary or desirable with respect to this Agreement
and the rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, unless the Depositor or the Master
Servicer acts without the consent of Holders of Certificates entitled to at
least 51% of the Voting Rights, the legal expenses and costs of such action and
any liability resulting therefrom (except any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder) shall be expenses, costs and liabilities of
the Trust Fund, and the Depositor and the Master Servicer shall be entitled to
be reimbursed therefor from the Collection Account as and to the extent provided
in Section 3.11, any such right of reimbursement being prior to the rights of
the Certificateholders to receive any amount in the Collection Account.
SECTION 6.04. Limitation on Resignation of the Master
Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except upon determination that its duties hereunder
are no longer permissible under applicable law. Any such determination pursuant
to the preceding sentence permitting the resignation of the Master Servicer
shall be evidenced by an Opinion of Counsel to such effect obtained at the
expense of the Master Servicer and delivered to the Trustee. No resignation of
the Master Servicer shall become effective until the Trustee or a successor
servicer shall have assumed the Master Servicer's responsibilities, duties,
liabilities (other than those liabilities arising prior to the appointment of
such successor) and obligations under this Agreement.
Except as expressly provided herein, the Master Servicer shall
not assign or transfer any of its rights, benefits or privileges hereunder to
any other Person, or delegate to or subcontract with, or authorize or appoint
any other Person to perform any of the duties, covenants or obligations to be
performed by the Master Servicer hereunder. The foregoing prohibition on
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assignment shall not prohibit the Master Servicer from designating a Subservicer
as payee of any indemnification amount payable to the Master Servicer hereunder;
provided, however, that as provided in Section 3.06 hereof, no Subservicer shall
be a third-party beneficiary hereunder and the parties hereto shall not be
required to recognize any Subservicer as an indemnitee under this Agreement. If,
pursuant to any provision hereof, the duties of the Master Servicer are
transferred to a successor master servicer, the entire amount of the Servicing
Fee and other compensation payable to the Master Servicer pursuant hereto shall
thereafter be payable to such successor master servicer.
SECTION 6.05. Rights of the Depositor in Respect of the Master
Servicer.
The Master Servicer shall afford (and any Sub-Servicing
Agreement shall provide that each Sub-Servicer shall afford) the Depositor and
the Trustee, upon reasonable notice, during normal business hours, access to all
records maintained by the Master Servicer (and any such
Sub-
Servicer) in respect of the Master Servicer's rights and obligations hereunder
and access to officers of the Master Servicer (and those of any such
Sub-Servicer) responsible for such obligations. Upon request, the Master
Servicer shall furnish to the Depositor and the Trustee its (and any such
Sub-Servicer's) most recent financial statements and such other information
relating to the Master Servicer's capacity to perform its obligations under this
Agreement as it possesses (and that any such Sub-Servicer possesses). To the
extent such information is not otherwise available to the public, the Depositor
and the Trustee shall not disseminate any information obtained pursuant to the
preceding two sentences without the Master Servicer's written consent, except as
required pursuant to this Agreement or to the extent that it is appropriate to
do so (i) in working with legal counsel, auditors, taxing authorities or other
governmental agencies or (ii) pursuant to any law, rule, regulation, order,
judgment, writ, injunction or decree of any court or governmental authority
having jurisdiction over the Depositor, the Trustee or the Trust Fund, and in
either case, the Depositor or the Trustee, as the case may be, shall use its
best efforts to assure the confidentiality of any such disseminated non-public
information. The Depositor may, but is not obligated to, enforce the obligations
of the Master Servicer under this Agreement and may, but is not obligated to,
perform, or cause a designee to perform, any defaulted obligation of the Master
Servicer under this Agreement or exercise the rights of the Master Servicer
under this Agreement; provided that the Master Servicer shall not be relieved of
any of its obligations under this Agreement by virtue of such performance by the
Depositor or its designee. The Depositor shall not have any responsibility or
liability for any action or failure to act by the Master Servicer and is not
obligated to supervise the performance of the Master Servicer under this
Agreement or otherwise.
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ARTICLE VII
DEFAULT
SECTION 7.01. Master Servicer Events of Default.
(a) "Master Servicer Event of Default," wherever used herein,
means any one of the following events:
(i) any failure by the Master Servicer to remit to the
Trustee for distribution to the Certificateholders any payment
(other than a P&I Advance required to be made from its own
funds on any Master Servicer Remittance Date pursuant to
Section 4.03) required to be made under the terms of the
Certificates and this Agreement which continues unremedied for
a period of one Business Day after the date upon which written
notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Depositor
or the Trustee (in which case notice shall be provided by
telecopy), or to the Master Servicer, the Depositor and the
Trustee by the Holders of Certificates entitled to at least
25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly
to observe or perform in any material respect any other of the
covenants or agreements on the part of the Master Servicer
contained in this Agreement, or the breach by the Master
Servicer of any representation and warranty contained in
Section 2.05, which continues unremedied for a period of 30
days after the earlier of (i) the date on which written notice
of such failure, requiring the same to be remedied, shall have
been given to the Master Servicer by the Depositor or the
Trustee, or to the Master Servicer, the Depositor and the
Trustee by the Holders of Certificates entitled to at least
25% of the Voting Rights and (ii) actual knowledge of such
failure by a Servicing Officer of the Master Servicer; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises in
an involuntary case under any present or future federal or
state bankruptcy, insolvency or similar law or the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceeding, or for the winding-up or liquidation of
its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 days; or
(iv) the Master Servicer shall consent to the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to it or of
or relating to all or substantially all of its property; or
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(v) the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations; or
(vi) any failure by the Master Servicer of the Master
Servicer Termination Test; or
(vii) any failure of the Master Servicer to make any P&I
Advance on any Master Servicer Remittance Date required to be
made from its own funds pursuant to Section 4.03 which
continues unremedied until 3:00 p.m. New York time on the
Business Day immediately following the Master Servicer
Remittance Date.
If a Master Servicer Event of Default described in clauses (i) through (vi) of
this Section shall occur, then, and in each and every such case, so long as such
Master Servicer Event of Default shall not have been remedied, the Depositor or
the Trustee may, and at the written direction of the Holders of Certificates
entitled to at least 51% of Voting Rights, the Trustee shall, by notice in
writing to the Master Servicer (and to the Depositor if given by the Trustee or
to the Trustee if given by the Depositor), terminate all of the rights and
obligations of the Master Servicer in its capacity as Master Servicer under this
Agreement, to the extent permitted by law, and in and to the Mortgage Loans and
the proceeds thereof. If a Master Servicer Event of Default described in clause
(vii) hereof shall occur, the Trustee shall, by notice in writing to the Master
Servicer and the Depositor, terminate all of the rights and obligations of the
Master Servicer in its capacity as Master Servicer under this Agreement and in
and to the Mortgage Loans and the proceeds thereof. On or after the receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the Certificates
(other than as a Holder of any Certificate) or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section,
and, without limitation, the Trustee is hereby authorized and empowered, as
attorney-in-fact or otherwise, to execute and deliver, on behalf of and at the
expense of the Master Servicer, any and all documents and other instruments and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents, or
otherwise. The Master Servicer agrees promptly (and in any event no later than
ten Business Days subsequent to such notice) to provide the Trustee with all
documents and records requested by it to enable it to assume the Master
Servicer's functions under this Agreement, and to cooperate with the Trustee in
effecting the termination of the Master Servicer's responsibilities and rights
under this Agreement, including, without limitation, the transfer within one
Business Day to the Trustee for administration by it of all cash amounts which
at the time shall be or should have been credited by the Master Servicer to the
Collection Account held by or on behalf of the Master Servicer, the Distribution
Account or any REO Account or Servicing Account held by or on behalf of the
Master Servicer or thereafter be received with respect to the Mortgage Loans or
any REO Property serviced by the Master Servicer (provided, however, that the
Master Servicer shall continue to be entitled to receive all amounts accrued or
owing to it under this Agreement on or prior to the date of such termination,
whether in respect of P&I Advances or otherwise, and shall continue to be
entitled to the benefits of Section 6.03,
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notwithstanding any such termination, with respect to events occurring prior to
such termination). For purposes of this Section 7.01, the Trustee shall not be
deemed to have knowledge of a Master Servicer Event of Default unless a
Responsible Officer of the Trustee assigned to and working in the Trustee's
Corporate Trust Office has actual knowledge thereof or unless written notice of
any event which is in fact such a Master Servicer Event of Default is received
by the Trustee and such notice references the Certificates, the Trust Fund or
this Agreement.
SECTION 7.02. Trustee to Act; Appointment of Successor.
(a) (1) On and after the time the Master Servicer receives a
notice of termination, the Trustee shall be the successor in all respects to the
Master Servicer in its capacity as Master Servicer under this Agreement and the
transactions set forth or provided for herein, and all the responsibilities,
duties and liabilities relating thereto and arising thereafter shall be assumed
by the Trustee (except for any representations or warranties of the Master
Servicer under this Agreement, the responsibilities, duties and liabilities
contained in Section 2.03(c) and the obligation to deposit amounts in respect of
losses pursuant to Section 3.12) by the terms and provisions hereof including,
without limitation, the Master Servicer's obligations to make P&I Advances
pursuant to Section 4.03; provided, however, that if the Trustee is prohibited
by law or regulation from obligating itself to make advances regarding
delinquent mortgage loans, then the Trustee shall not be obligated to make P&I
Advances pursuant to Section 4.03; and provided further, that any failure to
perform such duties or responsibilities caused by the Master Servicer's failure
to provide information required by Section 7.01 shall not be considered a
default by the Trustee as successor to the Master Servicer hereunder. As
compensation therefor, the Trustee shall be entitled to the Servicing Fee and
all funds relating to the Mortgage Loans to which the Master Servicer would have
been entitled if it had continued to act hereunder. Notwithstanding the above
and subject to Section 7.02(a)(2) below, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if it is prohibited
by law from making advances regarding delinquent mortgage loans or if the
Holders of Certificates entitled to at least 51% of the Voting Rights so request
in writing to the Trustee, promptly appoint or petition a court of competent
jurisdiction to appoint, an established mortgage loan servicing institution
acceptable to each Rating Agency and having a net worth of not less than
$15,000,000, as the successor to the Master Servicer under this Agreement in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer under this Agreement.
(2) No appointment of a successor to the Master Servicer under
this Agreement shall be effective until the assumption by the successor of all
of the Master Servicer's responsibilities, duties and liabilities hereunder. In
connection with such appointment and assumption described herein, the Trustee
may make such arrangements for the compensation of such successor out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Master Servicer as such hereunder. The Depositor, the Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. Pending appointment of a successor to the Master
Servicer under this Agreement, the Trustee shall act in such capacity as
hereinabove provided.
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(b) If the Master Servicer fails to remit to the Trustee for
distribution to the Certificateholders any payment required to be made under the
terms of this Agreement (for purposes of this Section 7.02(b), a "Remittance")
because the Master Servicer is the subject of a proceeding under the federal
Bankruptcy Code and the making of such Remittance is prohibited by Section 362
of the federal Bankruptcy Code, the Trustee shall upon notice of such
prohibition, regardless of whether it has received a notice of termination under
Section 7.01, advance the amount of such Remittance by depositing such amount in
the Distribution Account on the related Distribution Date. The Trustee shall be
obligated to make such advance only if (i) such advance, in the good faith
judgment of the Trustee, can reasonably be expected to be ultimately recoverable
from Stayed Funds and (ii) the Trustee is not prohibited by law from making such
advance or obligating itself to do so. Upon remittance of the Stayed Funds to
the Trustee or the deposit thereof in the Distribution Account by the Master
Servicer, a trustee in bankruptcy or a federal bankruptcy court, the Trustee may
recover the amount so advanced, without interest, by withdrawing such amount
from the Distribution Account; however, nothing in this Agreement shall be
deemed to affect the Trustee's rights to recover from the Master Servicer's own
funds interest on the amount of any such advance. If the Trustee at any time
makes an advance under this Subsection which it later determines in its good
faith judgment will not be ultimately recoverable from the Stayed Funds with
respect to which such advance was made, the Trustee shall be entitled to
reimburse itself for such advance, without interest, by withdrawing from the
Distribution Account, out of amounts on deposit therein, an amount equal to the
portion of such advance attributable to the Stayed Funds.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination of the Master Servicer pursuant to
Section 7.01 above or any appointment of a successor to the Master Servicer
pursuant to Section 7.02 above, the Trustee shall give prompt written notice
thereof to Certificateholders at their respective addresses
appearing in the Certificate Register.
(b) Not later than the later of 60 days after the occurrence
of any event, which constitutes or which, with notice or lapse of time or both,
would constitute a Master Servicer Event of Default or five days after a
Responsible Officer of the Trustee becomes aware of the occurrence of such an
event, the Trustee shall transmit by mail to all Holders of Certificates notice
of each such occurrence, unless such default or Master Servicer Event of Default
shall have been cured or waived.
SECTION 7.04. Waiver of Master Servicer Events of Default.
The Holders representing at least 66% of the Voting Rights
evidenced by all Classes of Certificates affected by any default or Master
Servicer Event of Default hereunder may waive such default or Master Servicer
Event of Default; PROVIDED, HOWEVER, that a default or Master Servicer Event of
Default under clause (i) or (vi) of Section 7.01 may be waived only by all of
the Holders of the Regular Certificates. Upon any such waiver of a default or
Master Servicer Event of Default, such default or Master Servicer Event of
Default shall cease to exist and shall be deemed to have been remedied for every
purpose hereunder. No such waiver shall extend to
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any subsequent or other default or Master Servicer Event of Default or impair
any right consequent thereon except to the extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of a Master Servicer
Event of Default and after the curing of all Master Servicer Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. During a Master Servicer Event
of Default, the Trustee shall exercise such of the rights and powers vested in
it by this Agreement, and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. Any permissive right of the Trustee
enumerated in this Agreement shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take such action as it deems appropriate to have the instrument
corrected, and if the instrument is not corrected to the Trustee's satisfaction,
the Trustee will provide notice thereof to the Certificateholders.
No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own misconduct; provided, however, that:
(i) Prior to the occurrence of a Master Servicer Event
of Default, and after the curing of all such Master Servicer
Events of Default which may have occurred, the duties and
obligations of the Trustee shall be determined solely by the
express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement,
no implied covenants or obligations shall be read into this
Agreement against the Trustee and, in the absence of bad faith
on the part of the Trustee, the Trustee may conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee that conform to the requirements of
this Agreement;
(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
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(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of the
Holders of Certificates entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01:
(i) The Trustee may request and rely upon and shall be
protected in acting or refraining from acting upon any
resolution, Officers' Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or
parties;
(ii) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon
the occurrence of a Master Servicer Event of Default (which
has not been cured or waived), to exercise such of the rights
and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct
of such person's own affairs;
(iv) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(v) Prior to the occurrence of a Master Servicer Event
of Default hereunder and after the curing of all Master
Servicer Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document,
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unless requested in writing to do so by the Holders of
Certificates entitled to at least 25% of the Voting Rights;
provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by such Certificateholders
the Trustee may require reasonable indemnity against such
expense, or liability from such Certificateholders as a
condition to taking any such action;
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys; and
(vii) The Trustee shall not be personally liable for any
loss resulting from the investment of funds held in the
Collection Account at the direction of the
Master Servicer pursuant to Section 3.12.
(b) All rights of action under this Agreement or under any of
the Certificates, enforceable by the Trustee, may be enforced by it without the
possession of any of the Certificates, or the production thereof at the trial or
other proceeding relating thereto, and any such suit, action or proceeding
instituted by the Trustee shall be brought in its name for the benefit of all
the Holders of such Certificates, subject to the provisions of this Agreement.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage
Loans.
The recitals contained herein and in the Certificates (other
than the signature of the Trustee, the authentication of the Trustee on the
Certificates, the acknowledgments of the Trustee contained in Article II and the
representations and warranties of the Trustee in Section 8.12) shall be taken as
the statements of the Depositor and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement (other than as specifically set forth
in Section 8.12) or of the Certificates (other than the signature of the Trustee
and authentication of the Trustee on the Certificates) or of any Mortgage Loan
or related document. The Trustee shall not be accountable for the use or
application by the Depositor of any of the Certificates or of the proceeds of
such Certificates, or for the use or application of any funds paid to the
Depositor or the Master Servicer in respect of the Mortgage Loans or deposited
in or withdrawn from the Collection Account by the Master Servicer, other than
any funds held by or on behalf of the Trustee in accordance with Section 3.10.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual capacity or any other capacity
may become the owner or pledgee of Certificates with the same rights it would
have if it were not Trustee.
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SECTION 8.05. Trustee's Fees and Expenses.
The Trustee shall withdraw from the Distribution Account on
each Distribution Date and pay to itself the Trustee Fee and, to the extent that
the funds therein are at anytime insufficient for such purpose, the Master
Servicer shall pay such fees. The Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or expense (not including expenses, disbursements
and advances incurred or made by the Trustee, including the compensation and the
expenses and disbursements of its agents and counsel, in the ordinary course of
the Trustee's performance in accordance with the provisions of this Agreement)
incurred by the Trustee in connection with any claim or legal action or any
pending or threatened claim or legal action arising out of or in connection with
the acceptance or administration of its obligations and duties under this
Agreement, other than any loss, liability or expense (i) resulting from any
breach by the Master Servicer of its obligations in connection with this
Agreement, (ii) that constitutes a specific liability of the Trustee pursuant to
Section 10.01(c) or (iii) any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties hereunder
or as a result of a breach of the Trustee's obligations under Article X hereof.
The Master Servicer agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising in respect of any breach by the
Master Servicer of its obligations in connection with this Agreement. Such
indemnity shall survive the termination or discharge of this Agreement and the
resignation or removal of the Trustee. Any payment hereunder made by the Master
Servicer to the Trustee shall be from the Master Servicer's own funds, without
reimbursement from REMIC I therefor.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
an association (other than the Depositor, the Seller, the Master Servicer or any
Affiliate of the foregoing) organized and doing business under the laws of any
state or the United States of America, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 (or a member of a bank holding company whose capital and surplus is
at least $50,000,000) and subject to supervision or examination by federal or
state authority. If such corporation or association publishes reports of
conditions at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section the combined capital and surplus of such corporation or association
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of conditions so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the
trust hereby created by giving written notice thereof to the Depositor, the
Master Servicer and to the Certificateholders. Upon receiving such notice of
resignation, the Depositor shall promptly
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appoint a successor trustee by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee and to the successor
trustee. A copy of such instrument shall be delivered to the Certificateholders
and the Master Servicer by the Depositor. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request therefor by the Depositor or if at any time the Trustee shall
become incapable of acting, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Depositor may remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders, and the Master Servicer by the Depositor.
The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Depositor, one complete set to the Trustee so removed
and one complete set to the successor so appointed. A copy of such instrument
shall be delivered to the Certificateholders and the Master Servicer by the
Depositor.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements, as well as all moneys, held
by it hereunder, and the Depositor and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section
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8.06 and the appointment of such successor trustee shall not result in a
downgrading of any Class of Certificates by either Rating Agency, as evidenced
by a letter from each Rating Agency.
Upon acceptance of appointment by a successor trustee as
provided in this Section, the Depositor shall mail notice of the succession of
such trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Depositor.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation or association into which the Trustee may be
merged or converted or with which it may be consolidated or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to the
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation or association shall be eligible under the provisions
of Section 8.06, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of REMIC I or property securing the same may at the time be located, the
Trustee shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Trustee to act as co-trustee or
co-trustees, jointly with the Trustee, or separate trustee or separate trustees,
of all or any part of REMIC I, and to vest in such Person or Persons, in such
capacity, such title to REMIC I, or any part thereof, and, subject to the other
provisions of this Section 8.10, such powers, duties, obligations, rights and
trusts as the Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed by the Trustee (whether as
Trustee hereunder or as successor to a defaulting Master Servicer hereunder),
the Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to REMIC I or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the direction
of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each
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of them. Every instrument appointing any separate trustee or co-trustee shall
refer to this Agreement and the conditions of this Article VIII. Each separate
trustee and co-trustee, upon its acceptance of the trust conferred, shall be
vested with the estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Trustee. Every such instrument shall be
filed with the Trustee.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 8.11. Appointment of Office or Agency.
The Trustee will appoint an office or agency in the City of
St. Paul, Minnesota where the Certificates may be surrendered for registration
of transfer or exchange, and presented for final distribution, and where notices
and demands to or upon the Trustee in respect of the
Certificates and this Agreement may be served.
SECTION 8.12. Representations and Warranties of the Trustee.
The Trustee hereby represents and warrants to the Master
Servicer and the Depositor, as of the Closing Date, that:
(i) The Trustee is a national banking association duly
organized, validly existing and in good standing under the laws of the
United States of America.
(ii) The execution and delivery of this Agreement by the
Trustee, and the performance and compliance with the terms of this
Agreement by the Trustee, will not violate the Trustee's articles of
association or bylaws or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or
result in the breach of, any material agreement or other instrument to
which it is a party or which is applicable to it or any of its assets.
(iii) The Trustee has the full power and authority to enter
into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this
Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by the Master Servicer and the Depositor, constitutes a valid,
legal and binding obligation of the Trustee, enforceable against the
Trustee in accordance with the terms hereof, subject to
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(A) applicable bankruptcy, insolvency, receivership, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law.
(v) The Trustee is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law,
any order or decree of any court or arbiter, or any order, regulation
or demand of any federal, state or local governmental or regulatory
authority, which violation, in the Trustee's good faith and reasonable
judgment, is likely to affect materially and adversely either the
ability of the Trustee to perform its obligations under this Agreement
or the financial condition of the Trustee.
(vi) No litigation is pending or, to the best of the Trustee's
knowledge, threatened against the Trustee which would prohibit the
Trustee from entering into this Agreement or, in the Trustee's good
faith reasonable judgment, is likely to materially and adversely affect
either the ability of the Trustee to perform its obligations under this
Agreement or the financial condition of the Trustee.
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ARTICLE IX
TERMINATION
SECTION 9.01 Termination Upon Repurchase or Liquidation of All
Mortgage Loans.
(a) Subject to Section 9.02, the respective obligations and
responsibilities under this Agreement of the Depositor, the Master Servicer and
the Trustee (other than the obligations of the Master Servicer to the Trustee
pursuant to Section 8.05 and of the Master Servicer to provide for and the
Trustee to make payments in respect of the REMIC I Regular Interests, the REMIC
II Regular Interests or the Classes of Certificates as hereinafter set forth)
shall terminate upon payment to the Certificateholders and the deposit of all
amounts held by or on behalf of the Trustee and required hereunder to be so paid
or deposited on the Distribution Date coinciding with or following the earlier
to occur of (i) the purchase by the Terminator (as defined below) of all
Mortgage Loans and each REO Property remaining in REMIC I and (ii) the final
payment or other liquidation (or any advance with respect thereto) of the last
Mortgage Loan or REO Property remaining in REMIC I; provided, however, that in
no event shall the trust created hereby continue beyond the expiration of 21
years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date hereof. Subject to Section 3.11 hereof, the purchase by the
Terminator of all Mortgage Loans and each REO Property remaining in REMIC I
shall be at a price (the "Termination Price") equal to the greater of (A) the
aggregate Purchase Price of all the Mortgage Loans included in REMIC I, plus the
appraised value of each REO Property, if any, included in REMIC I, such
appraisal to be conducted by an appraiser mutually agreed upon by the Terminator
and the Trustee in their reasonable discretion and (B) the aggregate fair market
value of all of the assets of REMIC I (as determined by the Terminator and the
Trustee, as of the close of business on the third Business Day next preceding
the date upon which notice of any such termination is furnished to
Certificateholders pursuant to the third paragraph of this Section 9.01);
provided, however, that in the event the Majority Class CE Certificateholder is
the Terminator, and subject to Section 3.11 hereof, the purchase by the Majority
Class CE Certificateholder of all Mortgage Loans and each REO Property remaining
in REMIC I shall be at the price designated in clause (A) above.
(b) The Majority Class CE Certificateholder shall have the
right and, to the extent the Majority Class CE Certificateholder fails to
exercise such right, the Master Servicer shall have the right (the party
exercising such right, the "Terminator"), to purchase all of the Mortgage Loans
and each REO Property remaining in REMIC I pursuant to clause (i) of the
preceding paragraph no later than the Determination Date in the month
immediately preceding the Distribution Date on which the Certificates will be
retired; provided, however, that the Terminator may elect to purchase all of the
Mortgage Loans and each REO Property remaining in REMIC I pursuant to clause (i)
above only if the sum of (A) the aggregate Stated Principal Balance of the
Mortgage Loans and each REO Property remaining in the Trust Fund at the time of
such election and (B) any amounts on deposit in the Pre-Funding Account is
reduced to less than 5% of the aggregate Stated Principal Balance of the Initial
Mortgage Loans as of the Cut-off Date and the Original Pre-Funded Amount.
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(c) Notice of the liquidation of the REMIC I Regular Interests
shall be given promptly by the Trustee by letter to Certificateholders mailed
(a) in the event such notice is given in connection with the purchase of the
Mortgage Loans and each REO Property by the Terminator, not earlier than the
15th day and not later than the 25th day of the month next preceding the month
of the final distribution on the Certificates or (b) otherwise during the month
of such final distribution on or before the Determination Date in such month, in
each case specifying (i) the Distribution Date upon which the Trust Fund will
terminate and the final payment in respect of the REMIC I Regular Interests, the
REMIC II Regular Interests and the Certificates will be made upon presentation
and surrender of the related Certificates at the office of the Trustee therein
designated, (ii) the amount of any such final payment, (iii) that no interest
shall accrue in respect of the REMIC I Regular Interests, the REMIC II Regular
Interests or the Certificates from and after the Interest Accrual Period
relating to the final Distribution Date therefor and (iv) that the Record Date
otherwise applicable to such Distribution Date is not applicable, payments being
made only upon presentation and surrender of the Certificates at the office of
the Trustee. In the event such notice is given in connection with the purchase
of all of the Mortgage Loans and each REO Property remaining in REMIC I by the
Terminator, the Terminator shall deliver to the Trustee for deposit in the
Distribution Account not later than the last Business Day of the month next
preceding the month of the final distribution on the Certificates an amount in
immediately available funds equal to the above-described purchase price. The
Trustee shall remit to the Master Servicer from such funds deposited in the
Distribution Account (i) any amounts which the Master Servicer would be
permitted to withdraw and retain from the Collection Account pursuant to Section
3.11 and (ii) any other amounts otherwise payable by the Trustee to the Master
Servicer from amounts on deposit in the Distribution Account pursuant to the
terms of this Agreement, in each case prior to making any final distributions
pursuant to Section 10.01(d) below. Upon certification to the Trustee by a
Servicing Officer of the making of such final deposit, the Trustee shall
promptly release to the Terminator the Mortgage Files for the remaining Mortgage
Loans, and the Trustee shall execute all assignments, endorsements and other
instruments necessary to effectuate such transfer.
(d) Upon presentation of the Certificates by the
Certificateholders on the final Distribution Date, the Trustee shall distribute
to each Certificateholder so presenting and surrendering its Certificates the
amount otherwise distributable on such Distribution Date in accordance with
Section 4.01 in respect of the Certificates so presented and surrendered. Any
funds not distributed to any Holder or Holders of Certificates being retired on
such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust
and credited to the account of the appropriate non-tendering Holder or Holders.
If any Certificates as to which notice has been given pursuant to this Section
9.01 shall not have been surrendered for cancellation within six months after
the time specified in such notice, the Trustee shall mail a second notice to the
remaining non-tendering Certificateholders to surrender their Certificates for
cancellation in order to receive the final distribution with respect thereto. If
within one year after the second notice all such Certificates shall not have
been surrendered for cancellation, the Trustee shall, directly or through an
agent, mail a final notice to the remaining related non-tendering
Certificateholders concerning surrender of their Certificates. The costs and
expenses of maintaining the funds in trust and of contacting such
Certificateholders shall be paid out of the assets remaining in the trust funds.
If within one
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year after the final notice any such Certificates shall not have been
surrendered for cancellation, the Trustee shall pay to Salomon Brothers Inc all
such amounts, and all rights of non-tendering Certificateholders in or to such
amounts shall thereupon cease. No interest shall accrue or be payable to any
Certificateholder on any amount held in trust by the Trustee as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 9.01. Any such amounts held in trust by
the Trustee shall be held in an Eligible Account and the Trustee may direct any
depository institution maintaining such account to invest the funds in one or
more Permitted Investments. All income and gain realized from the investment of
funds deposited in such accounts held in trust by the Trustee shall be for the
benefit of the Trustee; provided, however, that the Trustee shall deposit in
such account the amount of any loss of principal incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon the
realization of such loss.
Immediately following the deposit of funds in trust hereunder
in respect of the Certificates, the Trust Fund shall terminate.
SECTION 9.02 Additional Termination Requirements.
(a) In the event that the Terminator purchases all the
Mortgage Loans and each REO Property or the final payment on or other
liquidation of the last Mortgage Loan or REO Property remaining in REMIC I
pursuant to Section 9.01, the Trust Fund shall be terminated in
accordance with the following additional requirements:
(i) The Trustee shall specify the first day in the
90-day liquidation period in a statement attached to REMIC
I's, REMIC II's and REMIC III's final Tax Return pursuant to
Treasury regulation Section 1.860F-1 and shall satisfy all
requirements of a qualified liquidation under Section 860F of
the Code and any regulations thereunder, as evidenced by an
Opinion of Counsel obtained at the expense of the Terminator;
(ii) During such 90-day liquidation period and, at or
prior to the time of making of the final payment on the
Certificates, the Trustee shall sell all of the
assets of REMIC I to the Terminator for cash; and
(iii) At the time of the making of the final payment on
the Certificates, the Trustee shall distribute or credit, or
cause to be distributed or credited, to the Holders of the
Residual Certificates all cash on hand in the Trust Fund
(other than cash retained to meet claims), and the Trust Fund
shall terminate at that time.
(b) At the expense of the requesting Terminator (or, if the
Trust Fund is being terminated as a result of the occurrence of the event
described in clause (ii) of the first paragraph of Section 9.01, at the expense
of the Trustee without the right of reimbursement from the Trust Fund), the
Trustee shall prepare or cause to be prepared the documentation required in
connection with the adoption of a plan of liquidation of each of REMIC I , REMIC
II and REMIC III pursuant to this Section 9.02.
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(c) By their acceptance of Certificates, the Holders thereof
hereby agree to authorize the Trustee to specify the 90-day liquidation period
for each of REMIC I, REMIC II and REMIC III, which authorization shall be
binding upon all successor Certificateholders.
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ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall elect to treat each of REMIC I, REMIC II
and REMIC III as a REMIC under the Code and, if necessary, under applicable
state law. Each such election will be made by the Master Servicer on behalf of
the Trustee on Form 1066 or other appropriate federal tax or information return
or any appropriate state return for the taxable year ending on the last day of
the calendar year in which the Certificates are issued. For the purposes of the
REMIC election in respect of REMIC I, the REMIC I Regular Interests shall be
designated as the Regular Interests in REMIC I and the Class R-I Certificates
shall be designated as the Residual Interests in REMIC I. The REMIC II Regular
Interests shall be designated as the Regular Interests in REMIC II and the Class
R-II Certificates shall be designated as the Residual Interests in REMIC II. The
Class A Certificates, the Mezzanine Certificates, the Class CE Certificates and
the Class P Certificates shall be designated as the Regular Interests in REMIC
III and the Class R-III Certificates shall be designated as the Residual
Interests in REMIC III. The Trustee shall not permit the creation of any
"interests" in REMIC I, REMIC II or REMIC III (within the meaning of Section
860G of the Code) other than the REMIC I Regular Interests, the REMIC II Regular
Interests and the interests represented by the Certificates.
(b) The Closing Date is hereby designated as the "Startup Day"
of REMIC I, REMIC II and REMIC III within the meaning of Section 860G(a)(9) of
the Code.
(c) The Master Servicer shall pay out of its own funds,
without any right of reimbursement, any and all expenses relating to any tax
audit of the Trust Fund (including, but not limited to, any professional fees or
any administrative or judicial proceedings with respect to any REMIC I, REMIC II
or REMIC III that involve the Internal Revenue Service or state tax
authorities), other than the expense of obtaining any tax related Opinion of
Counsel except as specified herein. The Master Servicer, as agent for all of
REMIC I's, REMIC II's and REMIC III's tax matters person shall (i) act on behalf
of the Trust Fund in relation to any tax matter or controversy involving any of
REMIC I, REMIC II or REMIC III and (ii) represent the Trust Fund in any
administrative or judicial proceeding relating to an examination or audit by any
governmental taxing authority with respect thereto. The holder of the largest
Percentage Interest of the Residual Certificates shall be designated, in the
manner provided under Treasury regulations section 1.860F-4(d) and temporary
Treasury regulations section 301.6231(a)(7)-IT, as the tax matters person of the
related REMIC created hereunder. By their acceptance thereof, the holder of the
largest Percentage Interest of the Residual Certificates hereby agrees to
irrevocably appoint the Master Servicer or an Affiliate as its agent to perform
all of the duties of the tax matters person for the Trust Fund.
(d) The Master Servicer shall prepare and the Trustee shall
sign and file all of the Tax Returns in respect of each REMIC created hereunder.
The expenses of preparing and
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filing such returns shall be borne by the Master Servicer without any right of
reimbursement therefor.
(e) The Master Servicer shall perform on behalf of each of
REMIC I, REMIC II and REMIC III all reporting and other tax compliance duties
that are the responsibility of such REMIC under the Code, the REMIC Provisions
or other compliance guidance issued by the Internal Revenue Service or any state
or local taxing authority. Among its other duties, as required by the Code, the
REMIC Provisions or other such compliance guidance, the Master Servicer shall
provide (i) to any Transferor of a Residual Certificate such information as is
necessary for the application of any tax relating to the transfer of a Residual
Certificate to any Person who is not a Permitted Transferee, (ii) to the
Certificateholders such information or reports as are required by the Code or
the REMIC Provisions including reports relating to interest, original issue
discount and market discount or premium (using the Prepayment Assumption as
required) and (iii) to the Internal Revenue Service the name, title, address and
telephone number of the person who will serve as the representative of REMIC I,
REMIC II and REMIC III. The Depositor shall provide or cause to be provided to
the Master Servicer, within ten (10) days after the Closing Date, all
information or data that the Master Servicer reasonably determines to be
relevant for tax purposes as to the valuations and issue prices of the
Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
(f) The Master Servicer and the Trustee shall take such action
and shall cause each REMIC created hereunder to take such action as shall be
necessary to create or maintain the status thereof as a REMIC under the REMIC
Provisions. The Master Servicer and the Trustee shall not take any action, cause
the Trust Fund to take any action or fail to take (or fail to cause to be taken)
any action that, under the REMIC Provisions, if taken or not taken, as the case
may be, could (i) endanger the status of REMIC I, REMIC II or REMIC III as a
REMIC or (ii) result in the imposition of a tax upon the Trust Fund (including
but not limited to the tax on prohibited transactions as defined in Section
860F(a)(2) of the Code and the tax on contributions to a REMIC set forth in
Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event")
unless the Trustee has received an Opinion of Counsel, addressed to the Trustee
(at the expense of the party seeking to take such action but in no event at the
expense of the Trustee) to the effect that the contemplated action will not,
with respect to any of REMIC I, REMIC II or REMIC III, endanger such status or
result in the imposition of such a tax, nor shall the Master Servicer take or
fail to take any action (whether or not authorized hereunder) as to which the
Trustee has advised it in writing that it has received an Opinion of Counsel to
the effect that an Adverse REMIC Event could occur with respect to such action;
provided that the Master Servicer may conclusively rely on such Opinion of
Counsel and shall incur no liability for its action or failure to act in
accordance with such Opinion of Counsel. In addition, prior to taking any action
with respect to any of REMIC I, REMIC II or REMIC III or the respective assets
of each, or causing REMIC I, REMIC II or REMIC III to take any action, which is
not contemplated under the terms of this Agreement, the Master Servicer will
consult with the Trustee or its designee, in writing, with respect to whether
such action could cause an Adverse REMIC Event to occur with respect to REMIC I,
REMIC II or REMIC III, and the Master Servicer shall not take any such action or
cause REMIC I, REMIC II or REMIC III to take any such action as to which the
Trustee has
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<PAGE>
advised it in writing that an Adverse REMIC Event could occur; provided that the
Master Servicer may conclusively rely on such writing and shall incur no
liability for its action or failure to act in accordance with such writing. The
Trustee may consult with counsel to make such written advice, and the cost of
same shall be borne by the party seeking to take the action not permitted by
this Agreement, but in no event shall such cost be an expense of the Trustee. At
all times as may be required by the Code, the Trustee or the Master Servicer
will ensure that substantially all of the assets of both REMIC I and REMIC II
will consist of "qualified mortgages" as defined in Section 860G(a)(3) of the
Code and "permitted investments" as defined in Section 860G(a)(5) of the Code,
to the extent such obligations are within such party's control and not otherwise
inconsistent with the terms of this Agreement.
(g) In the event that any tax is imposed on "prohibited
transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of
the Code, on the "net income from foreclosure property" of such REMIC as defined
in Section 860G(c) of the Code, on any contributions to any such REMIC after the
Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax
is imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the Trustee pursuant to Section 10.03 hereof,
if such tax arises out of or results from a breach by the Trustee of any of its
obligations under this Article X, (ii) to the Master Servicer pursuant to
Section 10.03 hereof, if such tax arises out of or results from a breach by the
Master Servicer of any of its obligations under Article III or this Article X,
or (iii) against amounts on deposit in the Distribution Account and shall be
paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing
April 15, 1999, the Master Servicer shall deliver to each Rating Agency an
Officer's Certificate of the Master Servicer stating the Master Servicer's
compliance with this Article X.
(i) The Master Servicer shall, for federal income tax
purposes, maintain books and records with respect to each of REMIC I, REMIC II
and REMIC III on a calendar year and on an accrual basis.
(j) Following the Startup Day, the Master Servicer and the
Trustee shall not accept any contributions of assets to any of REMIC I, REMIC II
or REMIC III other than in connection with any Qualified Substitute Mortgage
Loan delivered in accordance with Section 2.03 unless it shall have received an
Opinion of Counsel to the effect that the inclusion of such assets in the Trust
Fund will not cause the related REMIC to fail to qualify as a REMIC at any time
that any Certificates are outstanding or subject such REMIC to any tax under the
REMIC Provisions or other applicable provisions of federal, state and local law
or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter
into any arrangement by which REMIC I, REMIC II or REMIC III will receive a fee
or other compensation for services nor permit either REMIC to receive any income
from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of
the Code or "permitted investments" as defined in Section 860G(a)(5) of the
Code.
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SECTION 10.02. Prohibited Transactions and Activities.
None of the Depositor, the Master Servicer or the Trustee
shall sell, dispose of or substitute for any of the Mortgage Loans (except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of REMIC I, (iii) the termination of
REMIC I pursuant to Article IX of this Agreement, (iv) a substitution pursuant
to Article II of this Agreement or (v) a purchase of Mortgage Loans pursuant to
Article II or III of this Agreement), nor acquire any assets for any of REMIC I,
REMIC II or REMIC III (other than REO Property acquired in respect of a
defaulted Mortgage Loan), nor sell or dispose of any investments in the
Collection Account or the Distribution Account for gain, nor accept any
contributions to any of REMIC I, REMIC II or REMIC III after the Closing Date
(other than a Qualified Substitute Mortgage Loan delivered in accordance with
Section 2.03), unless it has received an Opinion of Counsel, addressed to the
Trustee (at the expense of the party seeking to cause such sale, disposition,
substitution, acquisition or contribution but in no event at the expense of the
Trustee) that such sale, disposition, substitution, acquisition or contribution
will not (a) affect adversely the status of any of REMIC I, REMIC II or REMIC
III as a REMIC or (b) cause any of REMIC I, REMIC II or REMIC III to be subject
to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC
Provisions.
SECTION 10.03. Master Servicer and Trustee Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the
Depositor and the Master Servicer for any taxes and costs including, without
limitation, any reasonable attorneys fees imposed on or incurred by the Trust
Fund, the Depositor or the Master Servicer, as a result
of a breach of the Trustee's covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund,
the Depositor, and the Trustee for any taxes and costs including, without
limitation, any reasonable attorneys' fees imposed on or incurred by the Trust
Fund, the Depositor or the Trustee, as a result of a breach of the Master
Servicer's covenants set forth in Article III or this Article X.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement may be amended from time to time by the
Depositor, the Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity or defect, (ii) to correct, modify
or supplement any provisions herein (including to give effect to the
expectations of Certificateholders), or (iii) to make any other provisions with
respect to matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement, provided that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Trustee,
adversely affect in any material respect the interests of any Certificateholder.
No amendment shall be deemed to adversely affect in any material respect the
interests of any Certificateholder who shall have consented thereto, and no
Opinion of Counsel shall be required to address the effect of any such amendment
on any such consenting Certificateholder.
This Agreement may also be amended from time to time by the
Depositor, the Master Servicer and the Trustee with the consent of the Holders
of Certificates entitled to at least 66% of the Voting Rights for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certificate, (ii) adversely affect in any
material respect the interests of the Holders of any Class of Certificates in a
manner, other than as described in (i), without the consent of the Holders of
Certificates of such Class evidencing at least 66% of the Voting Rights
allocated to such Class, or (iii) modify the consents required by the
immediately preceding clauses (i) and (ii) without the consent of the Holders of
all Certificates then outstanding. Notwithstanding any other provision of this
Agreement, for purposes of the giving or withholding of consents pursuant to
this Section 11.01, Certificates registered in the name of the Depositor or the
Master Servicer or any Affiliate thereof shall be entitled to Voting Rights with
respect to matters affecting such Certificates.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel to the effect that such amendment will
not result in the imposition of any tax on any of REMIC I, REMIC II or REMIC III
pursuant to the REMIC Provisions or cause any of REMIC I, REMIC II or REMIC III
to fail to qualify as a REMIC at any time that any Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee
shall furnish a copy of such amendment to each Certificateholder.
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It shall not be necessary for the consent of
Certificateholders under this Section 11.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
The cost of any Opinion of Counsel to be delivered pursuant to
this Section 11.01 shall be borne by the Person seeking the related amendment,
but in no event shall such Opinion of Counsel be an expense of the Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer at the expense of the Certificateholders, but
only upon direction of the Trustee accompanied by an Opinion of Counsel to the
effect that such recordation materially and beneficially affects the interests
of the Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts
shall constitute but one and the same instrument.
SECTION 11.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of any of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
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No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates entitled to at least 25% of the Voting Rights shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 15 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatsoever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 11.04. Governing Law.
This Agreement shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in
accordance with such laws.
SECTION 11.05. Notices.
All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when received if personally
delivered at or mailed by first class mail, postage prepaid, or by express
delivery service or delivered in any other manner specified herein, to (a) in
the case of the Depositor, 18400 Von Karman, Suite 1000, Irvine, California
92612, Attention: ______________________ (telecopy number (949) 255-7878), or
such other address or telecopy number as may hereafter be furnished to the
Master Servicer and the Trustee in writing by the Depositor, (b) in the case of
the Master Servicer, ______________________ (telecopy number: ______________, or
such other address or telecopy number as may hereafter be furnished to the
Trustee and the Depositor in writing by the Master Servicer and (c) in the case
of the Trustee, ____________________________________, Attention:
_________________________ (telecopy number (__________________), or such other
address or telecopy number as may hereafter be furnished to the Master Servicer
and the Depositor in writing by the Trustee. Any notice required or permitted to
be given to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given when mailed, whether or not the
Certificateholder receives such notice. A copy of any notice required to be
telecopied hereunder also shall be mailed to the appropriate party in the manner
set forth above.
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SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07. Notice to Rating Agencies.
The Trustee shall use its best efforts promptly to provide
notice to the Rating Agencies with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Master Servicer Event of
Default that has not been cured or waived;
3. The resignation or termination of the Master Servicer
or the Trustee;
4. The repurchase or substitution of Mortgage Loans
pursuant to or as contemplated by Section 2.03;
5. The final payment to the Holders of any Class of
Certificates;
6. Any change in the location of the Collection Account
or the Distribution Account;
7. Any event that would result in the inability of the
Trustee to make advances regarding delinquent
Mortgage Loans; and
8. The filing of any claim under any Master Servicer's
blanket bond and errors and omissions insurance
policy required by Section 3.14 or the cancellation
or material modification of coverage under any such
instrument.
In addition, the Trustee shall promptly furnish to each Rating
Agency copies of each report to Certificateholders described in Section 4.02 and
the Master Servicer shall promptly
furnish to each Rating Agency copies of the following:
1. Each annual statement as to compliance described in
Section 3.20; and
2. Each annual independent public accountants' servicing
report described in Section 3.21.
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<PAGE>
Any such notice pursuant to this Section 11.07 shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by first class mail, postage prepaid, or by express delivery service
to Fitch IBCA, Inc., One State Street Plaza, 33rd Floor, New York, New York
10004, and to Standard & Poor's Ratings Services, 25 Broadway, New York, New
York 10004, or such other addresses as the Rating Agencies may designate in
writing to the parties hereto.
SECTION 11.08. Article and Section References.
All article and section references used in this Agreement,
unless otherwise provided, are to articles and sections in this Agreement.
SECTION 11.09. Grant of Security Interest.
It is the express intent of the parties hereto that the
conveyance of the Mortgage Loans by the Depositor to the Trustee be, and be
construed as, a sale of the Mortgage Loans by the Depositor and not a pledge of
the Mortgage Loans by the Depositor to secure a debt or other obligation of the
Depositor. However, in the event that, notwithstanding the aforementioned intent
of the parties, the Mortgage Loans are held to be property of the Depositor,
then, (a) it is the express intent of the parties that such conveyance be deemed
a pledge of the Mortgage Loans by the Depositor to the Trustee to secure a debt
or other obligation of the Depositor and (b)(1) this Agreement shall also be
deemed to be a security agreement within the meaning of Articles 8 and 9 of the
Uniform Commercial Code as in effect from time to time in the State of New York;
(2) the conveyance provided for in Section 2.01 hereof shall be deemed to be a
grant by the Depositor to the Trustee of a security interest in all of the
Depositor's right, title and interest in and to the Mortgage Loans and all
amounts payable to the holders of the Mortgage Loans in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property, including
without limitation all amounts, other than investment earnings, from time to
time held or invested in the Collection Account and the Distribution Account,
whether in the form of cash, instruments, securities or other property; (3) the
obligations secured by such security agreement shall be deemed to be all of the
Depositor's obligations under this Agreement, including the obligation to
provide to the Certificateholders the benefits of this Agreement relating to the
Mortgage Loans and the Trust Fund; and (4) notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Trustee for the purpose of perfecting such security interest under
applicable law. Accordingly, the Depositor hereby grants to the Trustee a
security interest in the Mortgage Loans and all other property described in
clause (2) of the preceding sentence, for the purpose of securing to the Trustee
the performance by the Depositor of the obligations described in clause (3) of
the preceding sentence. Notwithstanding the foregoing, the parties hereto intend
the conveyance pursuant to Section 2.01 to be a true, absolute and unconditional
sale of the Mortgage Loans and assets constituting the Trust Fund by the
Depositor to the Trustee.
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IN WITNESS WHEREOF, the Depositor, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized, in each case as of the day and year first above
written.
NEW CENTURY MORTGAGE
SECURITIES, INC.,
as Depositor
By:________________________________________
Name:
Title:
[Name of Master Servicer]
as Master Servicer
By:________________________________________
Name:
Title:
[Name of Trustee]
as Trustee
By:________________________________________
Name:
Title:
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the ___th day of ____________________, before me, a notary
public in and for said State, personally appeared ______________________, known
to me to be an__________________ of New Century Mortgage Securities, Inc., one
of the corporations that executed the within instrument, and also known to me to
be the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
____________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the ____ day of ___________________, before me, a notary
public in and for said State, personally appeared __________________, known to
me to be _______________ of [Name of Master Servicer], one of the corporations
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
____________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF __________ )
) ss.:
COUNTY OF ___________ )
On the ___th day of _______________________, before me, a
notary public in and for said State, personally appeared ____________________,
known to me to be a ____________________ of [Name of Trustee], one of the
corporations that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
____________________________________
Notary Public
[Notarial Seal]
Exhibit 4.2
NEW CENTURY MORTGAGE SECURITIES, INC.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer and Servicer
[NAME OF SERVICER]
Servicer
[NAME OF TRUSTEE]
Trustee
and
[NAME OF TRUST ADMINISTRATOR]
Trust Administrator
-----------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, _____
-----------------------------------------
Mortgage Pass-Through Certificates
Series 199_-__
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
SECTION PAGE
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ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Defined Terms...................................................................................5
Accepted Servicing Practices....................................................................5
Accrued Certificate Interest....................................................................5
Administration .................................................................................5
Administration .................................................................................5
Affiliate.......................................................................................6
Agreement.......................................................................................6
Annual Loss Percentage..........................................................................6
Assignment......................................................................................6
Available Distribution Amount...................................................................6
Balloon Loan....................................................................................7
Balloon Payment.................................................................................7
Bankruptcy Code.................................................................................7
Bankruptcy Loss.................................................................................7
Book-Entry Certificate..........................................................................7
Book-Entry Custodian............................................................................7
Business Day....................................................................................7
Cash-Out Refinancing............................................................................7
Certificate.....................................................................................8
Certificate Factor..............................................................................8
Certificate Insurer.............................................................................8
Certificate Insurer Default.....................................................................8
Certificate Insurer Premium.....................................................................9
Certificate Insurer Premium Rate................................................................9
Certificateholder" or "Holder...................................................................9
Certificate Owner...............................................................................9
Certificate Principal Balance...................................................................9
Certificate Register............................................................................9
Class .......................................................................................9
Certificate....................................................................................10
Class A-1 Certificate..........................................................................10
Class A-2 Certificate..........................................................................10
Class A-3 Certificate..........................................................................10
Class A-4 Certificate..........................................................................10
Class A-5 Certificate..........................................................................10
Class A-6 Certificate..........................................................................10
Class A-7 Certificate..........................................................................10
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SECTION PAGE
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Class CE Certificate...........................................................................10
Class P Certificate............................................................................11
Class R-I Certificate..........................................................................11
Class R-II Certificate.........................................................................11
Class R-III Certificates.......................................................................11
Closing Date...................................................................................11
Code ......................................................................................11
Collection Account.............................................................................11
Commission.....................................................................................11
Corporate Trust Office.........................................................................11
Corresponding Certificate......................................................................12
Cumulative Insurance Payments..................................................................12
Cumulative Loss Percentage.....................................................................12
Cut-off Date...................................................................................12
Debt Service Reduction.........................................................................12
Deficiency Amount..............................................................................12
Deficiency Event...............................................................................13
Deficient Valuation............................................................................13
Definitive Certificates........................................................................13
Deleted Mortgage Loan..........................................................................13
Delinquency Percentage.........................................................................13
Depositor......................................................................................13
Depository.....................................................................................13
Depository Institution.........................................................................13
Depository Participant.........................................................................14
Determination Date.............................................................................14
Directly Operate...............................................................................14
Disqualified Organization......................................................................14
Distribution Account...........................................................................14
Distribution Date..............................................................................15
Due Date ......................................................................................15
Due Period.....................................................................................15
Eligible Account...............................................................................15
ERISA ......................................................................................15
Estate in Real Property........................................................................15
Excess Overcollateralized Amount...............................................................15
Expense Account................................................................................15
Expense Adjusted Mortgage Rate.................................................................15
Fannie Mae.....................................................................................15
FDIC ......................................................................................15
Final Recovery Determination...................................................................15
Freddie Mac....................................................................................16
Guaranteed Distribution........................................................................16
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<PAGE>
SECTION PAGE
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Independent....................................................................................16
Independent Contractor.........................................................................16
Initial Deposit................................................................................16
Insurance Agreement............................................................................16
Insurance Payment..............................................................................17
Insurance Proceeds.............................................................................17
Interest Accrual Period........................................................................17
Interest Distribution Amount...................................................................17
Late Collections...............................................................................17
Liquidation Event..............................................................................17
Liquidation Proceeds...........................................................................17
Loan-to-Value Ratio............................................................................18
Lockout Certificates...........................................................................18
Lockout Certificate Percentage.................................................................18
Lockout Distribution Percentage................................................................18
Majority Class CE Certificateholder............................................................18
Master Servicer................................................................................18
Servicing Fee..................................................................................18
Servicing Fee Rate.............................................................................18
Maximum I-LT9 Uncertificated Interest Deferral Amount..........................................19
Monthly Payment................................................................................19
Moody's ......................................................................................19
Mortgage ......................................................................................19
Mortgage File..................................................................................19
Mortgage Loan..................................................................................19
Mortgage Loan Purchase Agreements..............................................................19
Mortgage Loan Schedule.........................................................................19
Mortgage Note..................................................................................22
Mortgage Pool..................................................................................22
Mortgage Rate..................................................................................22
Mortgaged Property.............................................................................22
Mortgagor......................................................................................22
Net Monthly Excess Cashflow....................................................................22
Net Monthly Excess Spread......................................................................22
Net Mortgage Rate..............................................................................22
Net WAC Pass-Through Rate......................................................................22
New Century....................................................................................23
New Lease......................................................................................23
Nonrecoverable P&I Advance.....................................................................23
Nonrecoverable Servicing Advance...............................................................23
Non-United States Person.......................................................................23
Notional Amount................................................................................23
Officers' Certificate..........................................................................23
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SECTION PAGE
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Opinion of Counsel.............................................................................23
Option One.....................................................................................23
Mortgage Loan..................................................................................24
Overcollateralized Amount......................................................................24
Overcollateralization Deficiency Amount........................................................24
Overcollateralization Increase Amount..........................................................24
Overcollateralization Reduction Amount.........................................................24
Percentage"....................................................................................24
Ownership Interest.............................................................................24
Pass-Through Rate..............................................................................24
Percentage Interest............................................................................26
Permitted Investments..........................................................................27
Permitted Transferee...........................................................................28
Person ......................................................................................28
P&I Advance....................................................................................28
Plan ......................................................................................28
Policy ......................................................................................28
Policy Payments Account........................................................................28
Premium Supplement.............................................................................28
Prepayment Assumption..........................................................................28
Prepayment Charge..............................................................................29
Prepayment Charge Schedule.....................................................................29
Prepayment Interest Shortfall..................................................................29
Prepayment Period..............................................................................29
Principal Distribution Amount..................................................................29
Principal Prepayment...........................................................................30
Purchase Price.................................................................................31
Qualified Substitute Mortgage Loan.............................................................31
Rate/Term Refinancing..........................................................................32
Rating Agency or Rating Agencies...............................................................32
Realized Loss..................................................................................32
Record Date....................................................................................33
Refinanced Mortgage Loan.......................................................................34
Regular Certificate............................................................................34
Regular Interest...............................................................................34
Relief Act.....................................................................................34
Relief Act Interest Shortfall..................................................................34
REMIC ......................................................................................34
REMIC I ......................................................................................34
REMIC I Interest Loss Allocation Amount........................................................34
REMIC I Overcollateralized Amount..............................................................35
REMIC I Principal Loss Allocation Amount.......................................................35
REMIC I Regular Interest.......................................................................35
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<PAGE>
SECTION PAGE
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REMIC I Regular Interest I-LT1.................................................................35
REMIC I Regular Interest I-LT2.................................................................35
REMIC I Regular Interest I-LT3.................................................................35
REMIC I Regular Interest I-LT4.................................................................36
REMIC I Regular Interest I-LT5.................................................................36
REMIC I Regular Interest I-LT6.................................................................36
REMIC I Regular Interest I-LT7.................................................................36
REMIC I Regular Interest I-LT8.................................................................36
REMIC I Regular Interest I-LT9.................................................................36
REMIC I Regular Interest I-LTP.................................................................37
REMIC I Remittance Rate........................................................................37
REMIC I Required Overcollateralized Amount.....................................................37
REMIC II ......................................................................................37
REMIC II Regular Interest......................................................................37
REMIC II Regular Interest II-LT1...............................................................37
REMIC II Regular Interest II-LT2...............................................................37
REMIC II Regular Interest II-LT3...............................................................37
REMIC II Regular Interest II-LT4...............................................................38
REMIC II Regular Interest II-LT5...............................................................38
REMIC II Regular Interest II-LT6...............................................................38
REMIC II Regular Interest II-LT7...............................................................38
REMIC II Regular Interest II-LT8...............................................................38
REMIC II Regular Interest II-LT9"..............................................................38
REMIC II Regular Interest II-LTP...............................................................39
REMIC II Regular Interest II-LT2S..............................................................39
REMIC II Regular Interest II-LT3S..............................................................39
REMIC II Regular Interest II-LT4S..............................................................39
REMIC II Regular Interest II-LT5S..............................................................39
REMIC II Regular Interest II-LT6S..............................................................39
REMIC II Regular Interest II-LT7S..............................................................39
REMIC II Regular Interest II-LT8S..............................................................39
REMIC II Remittance Rate.......................................................................39
REMIC III......................................................................................40
REMIC III Certificate..........................................................................40
REMIC III Certificateholder....................................................................40
Remittance Report..............................................................................40
Rents from Real Property.......................................................................40
REO Account....................................................................................40
REO Disposition................................................................................40
REO Imputed Interest...........................................................................41
REO Principal Amortization.....................................................................41
REO Property...................................................................................41
Request for Release............................................................................41
-v-
<PAGE>
SECTION PAGE
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Required Overcollateralized Amount.............................................................41
Residential Dwelling...........................................................................41
Residual Certificate...........................................................................42
Residual Interest..............................................................................42
Responsible Officer............................................................................42
Rolling Delinquency Percentage.................................................................42
Scheduled Principal Balance....................................................................42
Seller ......................................................................................43
Servicer Prepayment Charge Payment Amount......................................................43
Servicers......................................................................................43
Servicer Event of Default......................................................................43
Servicer Remittance Date.......................................................................43
Servicing Account..............................................................................43
Servicing Advances.............................................................................43
Servicing Fee..................................................................................44
Servicing Fee Rate.............................................................................44
Servicing Officer..............................................................................44
Single Certificate.............................................................................44
Spread Squeeze Condition.......................................................................44
Spread Squeeze Overcollateralization Increase Amount...........................................44
Spread Squeeze Percentage......................................................................45
S&P ......................................................................................45
Startup Day....................................................................................45
Stated Principal Balance.......................................................................45
Stayed Funds...................................................................................45
Step Down Cumulative Loss Test.................................................................46
Step Down Rolling Delinquency Test.............................................................46
Step Down Rolling Loss Test....................................................................46
Step Down Trigger".............................................................................46
Stepped Down Required Overcollateralized Percentage............................................46
Step Up Cumulative Loss Test"..................................................................46
Step Up Rolling Delinquency Test...............................................................47
Step Up Rolling Loss Test".....................................................................47
Step Up Spread Squeeze Test"...................................................................47
Step Up Trigger................................................................................47
Sub-Servicer...................................................................................47
Sub-Servicing Account..........................................................................47
Sub-Servicing Agreement........................................................................47
Substitution Shortfall Amount".................................................................47
Tax Returns....................................................................................47
Termination Price..............................................................................47
Terminator.....................................................................................47
Transfer ......................................................................................48
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<PAGE>
SECTION PAGE
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Transferee.....................................................................................48
Transferor.....................................................................................48
Trust Administrator............................................................................48
Trust Fund.....................................................................................48
Trustee ......................................................................................48
Uncertificated Balance.........................................................................48
Uncertificated Corresponding Component.........................................................48
Uncertificated Interest........................................................................49
Uncertificated Notional Amount.................................................................49
Uninsured Cause................................................................................49
United States Person...........................................................................49
Value ......................................................................................50
Voting Rights..................................................................................51
1.02. Allocation of Certain Interest Shortfalls......................................................51
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of the Mortgage Loans...............................................................53
2.02. Acceptance of REMIC I by Trustee...............................................................55
2.03. Repurchase or Substitution of Mortgage Loans by the Originators, the
Seller or the Depositor........................................................................57
2.04. Representations and Warranties of the Depositor................................................60
2.05. Representations, Warranties and Covenants of the Servicers.....................................62
2.06. Issuance of the Class R-I Certificates.........................................................65
2.07. Conveyance of the REMIC I Regular Interests; Acceptance of REMIC II by
the Trustee....................................................................................66
2.08. Issuance of Class R-II Certificates............................................................66
2.09. Conveyance of REMIC II Regular Interests; Acceptance of REMIC III by
the Trustee....................................................................................66
2.10. Issuance of REMIC III Certificates.............................................................67
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
3.01. Servicers to Act as Servicers..................................................................68
3.02. Sub-Servicing Agreements Between Servicer and Sub-Servicers....................................70
3.03. Successor Sub-Servicers........................................................................72
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SECTION PAGE
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3.04. Liability of the Servicer......................................................................72
3.05. No Contractual Relationship Between Sub-Servicers and the Trust
Administrator, the Trustee or Certificateholders...............................................72
3.06. Assumption or Termination of Sub-Servicing Agreements by Trust
Administrator..................................................................................73
3.07. Collection of Certain Mortgage Loan Payments...................................................73
3.08. Sub-Servicing Accounts.........................................................................74
3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts.........................74
3.10. Collection Account and Distribution Account....................................................75
3.11. Withdrawals from the Collection Account and Distribution Account...............................78
3.12. Investment of Funds in the Collection Account, the Expense Account and
the Distribution Account.......................................................................80
3.13. [intentionally omitted]........................................................................81
3.14. Maintenance of Hazard Insurance and Errors and Omissions and Fidelity
Coverage.......................................................................................81
3.15. Enforcement of Due-On-Sale Clauses; Assumption Agreements......................................83
3.16. Realization Upon Defaulted Mortgage Loans......................................................84
3.17. Trustee and Trust Administrator to Cooperate; Release of Mortgage File.........................86
3.18. Servicing Compensation.........................................................................88
3.19. Reports to the Trust Administrator and the Trustee; Collection Account
Statements.....................................................................................89
3.20. Statement as to Compliance.....................................................................89
3.21. Independent Public Accountants' Servicing Report...............................................89
3.22. Access to Certain Documentation................................................................90
3.23. Title, Management and Disposition of REO Property..............................................90
3.24. Obligations of the Servicer in Respect of Prepayment Interest Shortfall........................93
3.25. Expense Account................................................................................94
3.26. Obligations of the Servicer in Respect of Mortgage Rates and Monthly
Payments.......................................................................................94
3.27. Solicitations..................................................................................94
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Distributions..................................................................................96
4.02. Statements to Certificateholders..............................................................102
4.03. Remittance Reports; P&I Advances..............................................................105
4.04. Allocation of Realized Losses.................................................................107
4.05. Compliance with Withholding Requirements......................................................109
4.06. Exchange Commission; Additional Information...................................................109
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<PAGE>
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ARTICLE V
THE CERTIFICATES
5.01. The Certificates..............................................................................111
5.02. Registration of Transfer and Exchange of Certificates.........................................113
5.03. Mutilated, Destroyed, Lost or Stolen Certificates.............................................117
5.04. Persons Deemed Owners.........................................................................118
5.05. Certain Available Information.................................................................118
ARTICLE VI
THE DEPOSITOR AND THE SERVICERS
6.01. Liability of the Depositor and the Servicers..................................................120
6.02. Merger or Consolidation of the Depositor or the Servicers.....................................120
6.03. Limitation on Liability of the Depositor, the Servicers and Others............................120
6.04. Limitation on Resignation of the Servicers....................................................121
6.05. Rights of the Depositor in Respect of the Servicers...........................................122
ARTICLE VII
DEFAULT
7.01. Servicer Events of Default....................................................................123
7.02. Master Servicer, Trust Administrator or Trustee to Act; Appointment of
Successor.....................................................................................126
7.03. Notification to Certificateholders............................................................128
7.04. Waiver of Servicer Events of Default..........................................................128
ARTICLE VIII
CONCERNING THE TRUSTEE AND THE TRUST ADMINISTRATOR
8.01. Duties of Trustee and Trust Administrator.....................................................129
8.02. Certain Matters Affecting the Trustee and the Trust Administrator.............................130
8.03. Neither Trustee nor Trust Administrator Liable for Certificates or Mortgage
Loans.........................................................................................131
8.04. Trustee and Trust Administrator May Own Certificates..........................................132
8.05. Trustee's and Trust Administrator's Fees and Expenses.........................................132
8.06. Eligibility Requirements for Trustee and Trust Administrator..................................133
8.07. Resignation and Removal of the Trustee and the Trust Administrator............................133
8.08. Successor Trustee or Trust Administrator......................................................134
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<PAGE>
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8.09. Merger or Consolidation of Trustee or Trust Administrator.....................................135
8.10. Appointment of Co-Trustee or Separate Trustee.................................................135
8.11. Appointment of Office or Agency...............................................................136
8.12. Representations and Warranties................................................................137
ARTICLE IX
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
9.01. Rights of the Certificate Insurer To Exercise Rights of Class A
Certificateholders............................................................................138
9.02. Trustee and the Trust Administrator To Act Solely with Consent of the
Certificate Insurer...........................................................................138
9.03. Trust Fund and Accounts Held for Benefit of the Certificate Insurer...........................139
9.04. Claims Upon the Policy; Policy Payments Account...............................................139
9.05 Effect of Payments by the Certificate Insurer; Subrogation....................................141
9.06. Notices to the Certificate Insurer............................................................141
9.07. Third-Party Beneficiary.......................................................................141
9.08. Trust Administrator to Hold the Policy........................................................142
ARTICLE X
TERMINATION
10.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans..............................143
10.02 Additional Termination Requirements...........................................................145
ARTICLE XI
REMIC PROVISIONS
11.01. REMIC Administration..........................................................................147
11.02. Prohibited Transactions and Activities........................................................150
11.03. Master Servicer, Servicers, Trustee and Trust
Administrator Indemnification.................................................................150
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. Amendment.....................................................................................152
12.02. Recordation of Agreement; Counterparts........................................................153
12.03. Limitation on Rights of Certificateholders....................................................153
12.04. Governing Law.................................................................................154
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SECTION PAGE
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12.05. Notices.......................................................................................154
12.06. Severability of Provisions....................................................................155
12.07. Notice to Rating Agencies and the Certificate Insurer.........................................155
12.08. Article and Section References................................................................157
12.09. Grant of Security Interest....................................................................157
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</TABLE>
<PAGE>
EXHIBITS
Exhibit A-1 Form of Class A-1 Certificate
Exhibit A-2 Form of Class A-2 Certificate
Exhibit A-3 Form of Class A-3 Certificate
Exhibit A-4 Form of Class A-4 Certificate
Exhibit A-5 Form of Class A-5 Certificate
Exhibit A-6 Form of Class A-6 Certificate
Exhibit A-7 Form of Class A-7 Certificate
Exhibit A-8 Form of Class CE Certificate
Exhibit A-9 Form of Class P Certificate
Exhibit A-10 Form of Class R-I Certificate
Exhibit A-11 Form of Class R-II Certificate
Exhibit A-12 Form of Class R-III Certificate
Exhibit B Form of Financial Guaranty Insurance Policy
Exhibit C-1 Form of Trust Administrator's Initial Certification
Exhibit C-2 Form of Trust Administrator's Interim Certification
Exhibit C-3 Form of Trust Administrator's Final Certification
Exhibit D Form of Mortgage Loan Purchase Agreements
Exhibit E-1 Request for Release
Exhibit E-2 Request for Release Mortgage Loans paid in full Exhibit F-1 Form
of Transferor Representation Letter and Form of Transferee
Representation Letter in Connection with Transfer of the Class CE
Certificates or Class P Certificates Pursuant to Rule 144A Under
the 1933 Act
Exhibit F-2 Form of Transfer Affidavit and Agreement and Form of Transferor
Affidavit in Connection with Transfer of Residual Certificates
Exhibit G Form of Certification with respect to ERISA and the Code
Exhibit H Form of Report Pursuant to Section 4.06
Exhibit I Form of Lost Note Affidavit
Schedule 1 Mortgage Loan Schedule
Schedule 2 Prepayment Charge Schedule
-xii-
<PAGE>
This Pooling and Servicing Agreement, is dated and effective
as of December 1, 1998, among NEW CENTURY MORTGAGE SECURITIES, INC. as
Depositor, [Name of Master Servicer] as Master Servicer and Servicer, OPTION ONE
MORTGAGE CORPORATION as Servicer, [Name of Trustee] as Trustee and U.S. BANK
NATIONAL ASSOCIATION as Trust Administrator.
PRELIMINARY STATEMENT:
The Depositor intends to sell pass-through certificates to be
issued hereunder in multiple classes, which in the aggregate will evidence the
entire beneficial ownership interest in each REMIC (as defined herein) created
hereunder. The Trust Fund will consist of a segregated pool of assets comprising
of the Mortgage Loans and certain other related assets subject to this
Agreement.
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the Mortgage Loans and certain other
related assets (other than the Servicer Prepayment Charge Payment Amount)
subject to this Agreement as a REMIC for federal income tax purposes, and such
segregated pool of assets will be designated as "REMIC I." The Class R-I
Certificates will be the sole class of "residual interests" in REMIC I for
purposes of the REMIC Provisions (as defined herein). The following table
irrevocably sets forth the designation, the REMIC I Remittance Rate, the initial
Uncertificated Balance and, solely for purposes of satisfying Treasury
regulation Section 1.860G-1(a)(4)(iii), the "latest possible maturity date" for
each of the REMIC I Regular Interests (as defined herein). None of the REMIC I
Regular Interests will be certificated.
<TABLE>
<CAPTION>
REMIC I Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
----------- --------------- ---------------------- ----------------
<S> <C> <C> <C>
I-LT1 Variable(2)
I-LT2 Variable(2)
I-LT3 Variable(2)
I-LT4 Variable(2)
I-LT5 Variable(2)
I-LT6 Variable(2)
I-LT7 Variable(2)
I-LT8 Variable(2)
I-LT9 Variable(2)
I-LTP (3)
</TABLE>
-1-
<PAGE>
- ----------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity
date for the Mortgage Loan with the latest maturity date has been
designated as the "latest possible maturity date" for each REMIC I
Regular Interest.
(2) Calculated in accordance with the definition of "REMIC I Remittance
Rate" herein.
(3) The REMIC I Regular Interest I-LTP will not accrue interest.
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC
for federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC II." The Class R-II Certificates will evidence the sole
class of "residual interests" in REMIC II for purposes of the REMIC
Provisions.
The following table irrevocably sets forth the designation, the REMIC II
Remittance Rate, the initial Uncertificated Balance and, solely for purposes of
satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible
maturity date" for each of the REMIC II Regular Interests. None of the REMIC II
Regular Interests will be certificated.
<TABLE>
<CAPTION>
REMIC II Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
----------- --------------- ---------------------- ----------------
<S> <C> <C> <C>
II-LT1 Variable(2)
II-LT2 % per annum
II-LT3 % per annum
II-LT4 % per annum
II-LT5 % per annum
II-LT6 % per annum
II-LT7 % per annum(3)
II-LT8 % per annum
II-LT9 Variable(2)
II-LTP (4)
II-LT2S Variable(2) (5)
II-LT3S Variable(2) (5)
II-LT4S Variable(2) (5)
II-LT5S Variable(2) (5)
II-LT6S Variable(2) (5)
II-LT7S Variable(2) (5)
II-LT8S Variable(2) (5)
</TABLE>
-2-
<PAGE>
- --------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity
date for the Mortgage Loan with the latest maturity date has been
designated as the "latest possible maturity date" for each REMIC II
Regular Interest.
(2) Calculated in accordance with the definition of "REMIC II Remittance
Rate" herein.
(3) Subject to the Net WAC Pass-Through Rate.
(4) The REMIC II Regular Interest II-LTP will not accrue interest.
(5) This REMIC II Regular Interest has no Uncertificated Principal Balance
but will accrue interest at the related REMIC II Remittance Rate on the
related Uncertificated Notional Amount, which is equal to the
Uncertificated Balance of the Uncertificated Corresponding Component.
-3-
<PAGE>
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC II Regular Interests as a
REMIC for federal income tax purposes, and such segregated pool of assets will
be designated as "REMIC III." The Class R-III Certificates will evidence the
sole class of "residual interests" in REMIC III for purposes of the REMIC
Provisions. The following table irrevocably sets forth the designation, the
Pass-Through Rate, the initial aggregate Certificate Principal Balance and,
solely for purposes of satisfying Treasury regulation Section
1.860G-1(a)(4)(iii), the "latest possible maturity date" for the indicated
Classes of Certificates.
<TABLE>
<CAPTION>
Initial Aggregate Latest Possible
Designation Pass-through Rate Certificate Principal Balance Maturity Date(1)
----------- ----------------- ----------------------------- ----------------
<S> <C> <C> <C>
Class A-1 %per annum
Class A-2 % per annum
Class A-3 % per annum
Class A-4 % per annum
Class A-5 % per annum
Class A-6 % per annum(2)
Class A-7 % per annum
Class CE Variable(3)
Class P (5)
</TABLE>
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity
date for the Mortgage Loans with the latest maturity date has been
designated as the "latest possible maturity date" for each Class of
Certificates.
(2) Subject to the Net WAC Pass-Through Rate.
(3) Calculated in accordance with the definition of "Pass-Through Rate"
herein.
(4) The Class CE Certificates will accrue interest at their variable
Pass-Through Rate on the Notional Amount of the Class CE Certificates
outstanding from time to time which shall equal the Uncertificated
Balance of the REMIC II Regular Interests (other than the Uncertificated
Balance of REMIC II Regular Interest II-LTP). The Class CE Certificates
will not accrue interest on their Certificate Principal Balance.
(5) The Class P Certificates will not accrue interest.
As of the Cut-off Date, the Original Mortgage Loans had an
aggregate Scheduled Principal Balance equal to $______________.
In consideration of the mutual agreements herein contained,
the Depositor, the Master Servicer, the Servicers, the Trustee and the Trust
Administrator agree as follows:
-4-
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, including, without
limitation, in the Preliminary Statement hereto, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Unless otherwise specified, all calculations
described herein shall be made on the basis of a 360-day year consisting of
twelve 30-day months.
"Accepted Servicing Practices": The servicing standards set
forth in Section 3.01.
"Accrued Certificate Interest": With respect to any Class A
Certificate or Class CE Certificate and each Distribution Date, interest accrued
during the related Interest Accrual Period at the Pass-Through Rate for such
Certificate for such Distribution Date on the Certificate Principal Balance, in
the case of the Class A Certificates, or on the Notional Amount, in the case of
the Class CE Certificate, of such Certificate immediately prior to such
Distribution Date. The Class P Certificates are not entitled to distributions in
respect of interest and, accordingly, will not accrue interest. All
distributions of interest on the Class A Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class A Certificate,
shall be reduced by an amount equal to the portion allocable to such Certificate
pursuant to Section 1.02 hereof of the aggregate amount of any Relief Act
Interest Shortfall, if any, for such Distribution Date. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class CE Certificate,
shall be reduced by an amount equal to the portion allocable to such Certificate
pursuant to Section 1.02 hereof of the sum of (a) the aggregate Prepayment
Interest Shortfall, if any, for such Distribution Date to the extent not covered
by payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief
Act Interest Shortfall, if any, for such Distribution Date. In addition, Accrued
Certificate Interest with respect to each Distribution Date, as to any Class CE
Certificate, shall be reduced by an amount equal to the portion allocable to
such Class CE Certificate of Realized Losses, if any, pursuant to Section 4.04
hereof.
"Administration Fee": The amount payable to the Trustee on
each Distribution Date pursuant to Section 8.05 as compensation for all services
rendered by it in the execution of the trust hereby created and in the exercise
and performance of any of the powers and duties of the Trustee hereunder, which
amount shall equal one twelfth of the product of (i) the Administration Fee
Rate, multiplied by (ii) the aggregate Scheduled Principal Balance of the
Mortgage Loans and any REO Properties as of the second preceding Due Date (or,
in the case of the initial Distribution Date, as of the Cut-off Date). The fee
payable to the Trust Administrator for all services rendered by it in the
execution of the trust hereby created and in the exercise and performance of any
of the powers and duties of the Trust Administrator hereunder will be paid by
the Trustee out of the Administration Fee.
"Administration Fee Rate": ______% per annum.
-5-
<PAGE>
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
"Annual Loss Percentage": With respect to any Distribution
Date, a fraction, expressed as a percentage, the numerator of which is the
aggregate of all Realized Losses for the twelve months ending on the last day of
the preceding month and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties as of the first day
of the twelfth preceding calendar month.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Available Distribution Amount": With respect to any
Distribution Date, an amount equal to (1) the sum of (a) the aggregate of the
amounts on deposit in the Collection Account and Distribution Account as of the
close of business on the related Determination Date, (b) the aggregate of any
amounts received in respect of an REO Property withdrawn from any REO Account
and deposited in the Distribution Account for such Distribution Date pursuant to
Section 3.23, (c) the aggregate of any amounts deposited in the Distribution
Account by the Servicers in respect of Prepayment Interest Shortfalls for such
Distribution Date pursuant to Section 3.24, (d) the aggregate of any P&I
Advances made by the Servicers for such Distribution Date pursuant to Section
4.03, (e) the aggregate of any advances made by the Master Servicer, the Trust
Administrator or the Trustee, as applicable, for such Distribution Date pursuant
to Section 7.02(b) and (f) with respect to the initial Distribution Date, the
Initial Deposit, reduced (to not less than zero), by (2) the sum of (x) the
portion of the amount described in clause (1)(a) above that represents (i)
Monthly Payments on the Mortgage Loans received from a Mortgagor on or prior to
the Determination Date but due during any Due Period subsequent to the related
Due Period, (ii) Principal Prepayments on the Mortgage Loans received after the
related Prepayment Period (together with any interest payments received with
such Principal Prepayments to the extent they represent the payment of interest
accrued on the Mortgage Loans during a period subsequent to the related
Prepayment Period), (iii) Liquidation Proceeds and Insurance Proceeds received
in respect of the Mortgage Loans after the related Prepayment Period, (iv)
amounts reimbursable or payable to the Depositor, either Servicer, the Master
Servicer, the Trustee, either Originator, the Trust Administrator, the Seller or
any Sub-Servicer pursuant to Section 3.11 or Section 3.12 or otherwise payable
in respect of extraordinary Trust Fund expenses, (v) Stayed Funds, (vi) the
-6-
<PAGE>
amount of the Certificate Insurer Premium payable from the Distribution Account
to the Expense Account pursuant to Section 3.25(b) for payment to the
Certificate Insurer, the Administration Fee payable from the Distribution
Account pursuant to Section 8.05 and the Master Servicing Fee payable from the
Distribution Account pursuant to Section 3.11(b)(3), (vii) amounts deposited in
the Collection Account or the Distribution Account in error and (viii) the
amount of any Prepayment Charges collected by the Servicers in connection with
the Principal Prepayment of any of the Mortgage Loans and any Servicer
Prepayment Charge Payment Amount, and (y) amounts reimbursable to the Master
Servicer, the Trustee or the Trust Administrator, as applicable, for an advance
made pursuant to Section 7.02(b) which advance the Master Servicer, the Trustee
or Trust Administrator, as applicable, has determined to be nonrecoverable from
the Stayed Funds in respect of which it was made.
"Balloon Loan": Any Mortgage Loan that provided on the date of
origination for an amortization schedule extending beyond its stated maturity
date.
"Balloon Payment": With respect to any Balloon Loan, as of any
date of determination, the Monthly Payment payable on the stated maturity date
of such Mortgage Loan.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11
of the United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Realized Loss resulting from a Deficient Valuation or Debt Service Reduction.
"Book-Entry Certificate": The Class A Certificates for so long
as the Certificates of such Class shall be registered in the name of the
Depository or its nominee.
"Book-Entry Custodian": The custodian appointed pursuant to
Section 5.01.
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking or savings and loan institutions in the State of
__________, the State of ________, the State of ____________ or in the city in
which the Corporate Trust Office of the Trust Administrator or the Corporate
Trust Office of the Trustee is located, are authorized or obligated
by law or executive order to be closed.
"Cash-Out Refinancing": With respect to a Mortgage Loan
serviced by ___________, a Refinanced Mortgage Loan the proceeds of which are
more than a nominal amount in excess of the principal balance of any existing
first mortgage or subordinate mortgage on the related Mortgaged Property and
related closing costs. With respect to a Mortgage Loan serviced by __________, a
Refinanced Mortgage Loan, the proceeds of which were more than the greater of
(a) $1,000 or (b) 1% of the principal balance of an existing first mortgage on
the related Mortgaged Property and the principal balance of any existing
subordinate mortgages on the related Mortgaged Property, in either case, in
excess of the principal balance of an existing first mortgage on the related
Mortgaged Property, the principal balance of any existing subordinate mortgages
on the related Mortgaged Property and related closing costs, and were used to
satisfy such existing
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<PAGE>
first mortgage, or any such subordinate mortgages, to pay related closing costs
and to provide to the Mortgagor more than $1,000 or the amount calculated in
clause (b) above, as applicable, in addition thereto. Notwithstanding the
foregoing, with respect to __________, any Refinanced Mortgage Loan with a
Loan-to-Value Ratio less than or equal to 80% that was used for the purpose of
debt consolidation is considered a Cash-Out Refinancing.
"Certificate": Any one of the Depositor's Mortgage
Pass-Through Certificates, Series 199_-___, Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7, Class CE, Class P, Class R-I, Class
R-II or Class R-III, issued under this Agreement.
"Certificate Factor": With respect to any Class of Regular
Certificates as of any Distribution Date, a fraction, expressed as a decimal
carried to six places, the numerator of which is the aggregate Certificate
Principal Balance (or the Notional Amount, in the case of the Class CE
Certificates) of such Class of Certificates on such Distribution Date (after
giving effect to any distributions of principal and allocations of Realized
Losses in reduction of the Certificate Principal Balance (or the Notional
Amount, in the case of the Class CE Certificates) of such Class of Certificates
to be made on such Distribution Date), and the denominator of which is the
initial aggregate Certificate Principal Balance (or the Notional Amount, in the
case of the Class CE Certificates) of such Class of Certificates as of the
Closing Date.
"Certificate Insurer": _________________________________, a
stock insurance company organized and created under the laws of the State of New
York, and any successors thereto.
"Certificate Insurer Default": The existence and continuance
of any of the following:
(a) The Certificate Insurer fails to make a payment
required under the Policy in accordance with its terms; or
(b)(i) the Certificate Insurer (A) files any petition
or commences any case or proceeding under any provision or
chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (B) makes a general assignment
for the benefit of its creditors, or (C) has an order for
relief entered against it under the Bankruptcy Code or any
other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization
which is final and nonappealable; or
(ii) a court of competent jurisdiction, the New York
Department of Insurance or other competent regulatory
authority enters a final and nonappealable order, judgment or
decree (A) appointing a custodian, trustee, agent or receiver
for the Certificate Insurer or for all or any material portion
of its property or (B) authorizing the taking of possession by
a custodian, trustee, agent or receiver of the Certificate
Insurer (or the taking of possession of all or any material
portion of the property of the Certificate Insurer).
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"Certificate Insurer Premium": The Policy premium payable
pursuant to Section 3.25(b) hereof.
"Certificate Insurer Premium Rate": ____% per annum.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register and the Certificate
Insurer to the extent of Cumulative Insurance Payments, except that a
Disqualified Organization or a Non-United States Person shall not be a Holder of
a Residual Certificate for any purposes hereof and, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or either Servicer or any Affiliate thereof shall be
deemed not to be outstanding and the Voting Rights to which it is entitled shall
not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 12.01. The Trustee and the Trust Administrator may
conclusively rely upon a certificate of the Depositor or either Servicer in
determining whether a Certificate is held by an Affiliate thereof. All
references herein to "Holders" or "Certificateholders" shall reflect the rights
of Certificate Owners as they may indirectly exercise such rights through the
Depository and participating members thereof, except as otherwise specified
herein; provided, however, that the Trustee and the Trust Administrator shall be
required to recognize as a "Holder" or "Certificateholder" only the Person in
whose name a Certificate is registered in the Certificate Register.
"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate as reflected on the
books of the Depository or on the books of a Depository Participant or on the
books of an indirect participating brokerage firm for which a Depository
Participant acts as agent.
"Certificate Principal Balance": With respect to each Class A
Certificate or Class P Certificate as of any date of determination, the
Certificate Principal Balance of such Certificate on the Distribution Date
immediately prior to such date of determination, minus all distributions
allocable to principal made thereon and Realized Losses allocated thereto on
such immediately prior Distribution Date (or, in the case of any date of
determination up to and including the first Distribution Date, the initial
Certificate Principal Balance of such Certificate, as stated on the face
thereof). With respect to each Class CE Certificate as of any date of
determination, an amount equal to the Percentage Interest evidenced by such
Certificate times the excess, if any, of (A) the then aggregate Uncertificated
Balances of the REMIC II Regular Interests over (B) the then aggregate
Certificate Principal Balances of the Class A Certificates and the Class P
Certificates then outstanding.
"Certificate Register": The register maintained pursuant to
Section 5.02.
"Class": Collectively, all of the Certificates bearing the
same class designation.
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"Class A Certificate": Any Class A-1 Certificate, Class A-2
Certificate, Class A-3 Certificate, Class A-4 Certificate, Class A-5
Certificate, Class A-6 Certificate or Class A-7 Certificate.
"Class A-1 Certificate": Any one of the Class A-1 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-1 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-2 Certificate": Any one of the Class A-2 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-2 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-3 Certificate": Any one of the Class A-3 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-3 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-4 Certificate": Any one of the Class A-4 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-4 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-5 Certificate": Any one of the Class A-5 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-5 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-6 Certificate": Any one of the Class A-6 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-6 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-7 Certificate": Any one of the Class A-7 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-7 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class CE Certificate": Any one of the Class CE Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-8 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
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"Class P Certificate": Any one of the Class P Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-9 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class R-I Certificate": Any one of the Class R-I Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-10 and evidencing the
Residual Interest in REMIC I for purposes of the REMIC Provisions.
"Class R-II Certificate": Any one of the Class R-II
Certificates executed, authenticated and delivered by the Trustee or the Trust
Administrator, substantially in the form annexed hereto as Exhibit A-11 and
evidencing the Residual Interest in REMIC II for purposes of the REMIC
Provisions.
"Class R-III Certificates": Any one of the Class R-III
Certificates executed, authenticated and delivered by the Trustee or the Trust
Administrator, substantially in the form annexed hereto as Exhibit A-12 and
evidencing the Residual Interest in REMIC III for purposes of the REMIC
Provisions.
"Closing Date": _________________.
"Code": The Internal Revenue Code of 1986.
"Collection Account": Each of the accounts created and
maintained, or caused to be created and maintained, by each Servicer pursuant to
Section 3.10(a), which shall be entitled as appropriate, "New Century Mortgage
Corporation, as Servicer for Firstar Bank Milwaukee, N.A., as Trustee, in trust
for (A) the registered holders of Salomon Brothers Mortgage Securities VII,
Inc., Mortgage Pass-Through Certificates, Series 1998-NC7 and (B) Financial
Security Assurance Inc." or "Option One Mortgage Corporation, as Servicer for
Firstar Bank Milwaukee, N.A., as Trustee, in trust for (A) the registered
holders of Salomon Brothers Mortgage Securities VII, Inc., Mortgage Pass-Through
Certificates, Series 1998-NC7 and (B) Financial Security Assurance Inc." The
Collection Account must be an Eligible Account.
"Commission": The Securities and Exchange Commission.
"Corporate Trust Office": The principal corporate trust office
of the Trust Administrator or the Trustee, as the case may be, at which at any
particular time its corporate trust business in connection with this Agreement
shall be administered, which office, with respect to the Trust Administrator, at
the date of the execution of this instrument is located at
__________________________________, or at such other address as the Trust
Administrator may designate from time to time by notice to the
Certificateholders, the Depositor, each Servicer, the Trustee and the
Certificate Insurer and, with respect to the Trustee, at the date of the
execution of this instrument is located at
_____________________________________, or such other address
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as the Trustee may designate from time to time by notice to the
Certificateholders, the Depositor, each Servicer, the Trust Administrator and
the Certificate Insurer.
"Corresponding Certificate": With respect to REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4,
REMIC I Regular Interest I- LT5, REMIC I Regular Interest I-LT6, REMIC I Regular
Interest I-LT7, REMIC I Regular Interest I-LT8 and REMIC I Regular Interest
I-LTP, the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates, Class A-6
Certificates, Class A-7 Certificates and Class P Certificates, respectively.
With respect to REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT5,
REMIC II Regular Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II
Regular Interest II-LT8 and REMIC II Regular Interest II-LTP, the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 Certificates, Class A-6 Certificates, Class A-7
Certificates and Class P Certificates, respectively.
"Cumulative Insurance Payments": As of any time of
determination, the aggregate of all Insurance Payments previously made by the
Certificate Insurer under the Policy plus interest thereon from the date such
amount became due until paid in full, at a rate of interest calculated as
provided in the Insurance Agreement minus all payments previously made to the
Certificate Insurer pursuant to Section 4.01 hereof as reimbursement for such
amounts.
"Cumulative Loss Percentage": With respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
aggregate amount of Realized Losses incurred from the Cut-off Date to the last
day of the preceding calendar month and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date.
"Cut-off Date": With respect to each Original Mortgage Loan,
December 1, 1998. With respect to all Qualified Substitute Mortgage Loans, their
respective dates of substitution. References herein to the "Cut-off Date," when
used with respect to more than one Mortgage Loan, shall be to the respective
Cut-off Dates for such Mortgage Loans.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient
Valuation.
"Deficiency Amount": With respect to the Class A Certificates
as of any Distribution Date, the sum of (i) any shortfall in the amounts
available in the Distribution Account to pay the Interest Distribution Amount on
such Certificates for the related Interest Accrual Period, (ii) the excess, if
any, of (a) the aggregate Certificate Principal Balances of the Class A
Certificates then outstanding over (b) the aggregate Stated Principal Balances
of the Mortgage Loans and REO Properties then outstanding, and (iii) without
duplication of the amount specified in clause (ii), the aggregate Certificate
Principal Balances of the Class A Certificates to the extent
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unpaid on the final Distribution Date or earlier termination of the Trust Fund
pursuant to the terms of this Agreement.
"Deficiency Event": The inability of the Trust Administrator
to make the Guaranteed Distribution on any Distribution Date due to a shortage
of funds for such purpose then held in the Distribution Account and the failure
of the Certificate Insurer to pay in full a claim made in accordance with the
Policy with respect to such Distribution Date.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding
initiated under the Bankruptcy Code.
"Definitive Certificates": As defined in Section 5.01(b).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquency Percentage": As of the last day of the related
Due Period, the percentage equivalent of a fraction, the numerator of which is
the aggregate Stated Principal Balance of all Mortgage Loans that, as of the
last day of the previous calendar month, are 60 or more days delinquent, are in
foreclosure, have been converted to REO Properties or have been discharged by
reason of bankruptcy, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties as of the last day of
the previous calendar month; provided, however, that any Mortgage Loan purchased
by the Master Servicer (or by Option One) pursuant to Section 3.16(c) shall not
be included in either the numerator or the denominator for purposes of
calculating the Delinquency Percentage.
"Depositor": Salomon Brothers Mortgage Securities VII, Inc., a
Delaware corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository, for purposes
of registering those Certificates that are to be Book-Entry Certificates, is
CEDE & Co. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust
company, including the Trustee and the Trust Administrator, that (a) is
incorporated under the laws of the United States of America or any State
thereof, (b) is subject to supervision and examination by federal or state
banking authorities and (c) has outstanding unsecured commercial paper or other
short-term unsecured debt obligations (or, in the case of a depository
institution that is the principal subsidiary of a holding company, such holding
company has unsecured commercial paper or other
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short-term unsecured debt obligations) that are rated P-1 by Moody's and A-1 by
S&P (or comparable ratings if Moody's and S&P are not the Rating Agencies).
"Depository Participant": A broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"Determination Date": With respect to each Distribution Date,
the 15th day of the calendar month in which such Distribution Date occurs or, if
such 15th day is not a Business Day, the Business Day immediately preceding such
15th day.
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, the holding of such REO Property primarily for
sale to customers, the performance of any construction work thereon or any use
of such REO Property in a trade or business conducted by REMIC I other than
through an Independent Contractor; provided, however, that the Trustee (or the
related Servicer on behalf of the Trustee) shall not be considered to Directly
Operate an REO Property solely because the Trustee (or the related Servicer on
behalf of the Trustee) establishes rental terms, chooses tenants, enters into or
renews leases, deals with taxes and insurance, or makes decisions as to repairs
or capital expenditures with respect to such REO Property.
"Disqualified Organization": Any of the following: (i) the
United States, any State or political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality which is a corporation if all of its activities are
subject to tax and, except for Freddie Mac, a majority of its board of directors
is not selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code, (v) an "electing
large partnership" and (vi) any other Person so designated by the Trustee or the
Trust Administrator based upon an Opinion of Counsel that the holding of an
Ownership Interest in a Residual Certificate by such Person may cause any of
REMIC I, REMIC II or REMIC III or any Person having an Ownership Interest in any
Class of Certificates (other than such Person) to incur a liability for any
federal tax imposed under the Code that would not otherwise be imposed but for
the Transfer of an Ownership Interest in a Residual Certificate to such Person.
The terms "United States," "State" and "international organization" shall have
the meanings set forth in Section 7701 of the Code or successor provisions.
"Distribution Account": The trust account or accounts created
and maintained by the Trust Administrator pursuant to Section 3.10(b), which
shall be entitled "U.S. Bank National Association, as Trust Administrator for
Firstar Bank Milwaukee, N.A., as Trustee, in trust for (A) the registered
holders of Salomon Brothers Mortgage Securities VII, Inc., Mortgage Pass-
Through Certificates, Series 1998-NC7 and (B) Financial Security Assurance Inc."
The Distribution Account must be an Eligible Account.
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"Distribution Date": The 25th day of any month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day, commencing in __________________.
"Due Date": With respect to each Distribution Date, the first
day of the calendar month in which such Distribution Date occurs, which is
generally the day of the month on which the Monthly Payment is due on a Mortgage
Loan, exclusive of any days of grace.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month immediately preceding the month
in which such Distribution Date occurs and ending on the related Due Date.
"Eligible Account": Any of (i) an account or accounts
maintained with a Depository Institution, (ii) an account or accounts the
deposits in which are fully insured by the FDIC or (iii) a trust account or
accounts maintained with the corporate trust department of a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity. Eligible Accounts may bear interest.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended.
"Estate in Real Property": A fee simple estate in a parcel of
land.
"Excess Overcollateralized Amount": With respect to the Class
A Certificates and any Distribution Date, the excess, if any, of (i) the
Overcollateralized Amount for such Distribution Date over (ii) the Required
Overcollateralized Amount for such Distribution Date.
"Expense Account": The account established and maintained
pursuant to Section 3.25.
"Expense Adjusted Mortgage Rate": With respect to any Mortgage
Loan or REO Property, the then applicable Mortgage Rate thereon minus the sum of
(i) the Administration Fee Rate, (ii) the Servicing Fee Rate and (iii) the
Master Servicing Fee Rate.
"Fannie Mae": Fannie Mae, formally known as the Federal
National Mortgage Association ("FNMA"), or any successor thereto.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"Final Recovery Determination": With respect to any defaulted
Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property
purchased by the related Originator, the Seller, the Depositor, the Majority
Class CE Certificateholder, the related Servicer, the Master Servicer or the
Certificate Insurer pursuant to or as contemplated by Section 2.03, Section
3.16(c) or Section 10.01), a determination made by the related Servicer that all
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
such Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have
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been so recovered. Each Servicer shall maintain records, prepared by a Servicing
Officer, of each Final Recovery Determination made thereby.
"Freddie Mac": Freddie Mac, formally known as the Federal Home
Loan Mortgage Corporation ("FHLMC"), or any successor thereto.
"Guaranteed Distribution": As defined in the Policy.
"Independent": When used with respect to any specified Person,
any such Person who (a) is in fact independent of the Depositor, the Seller,
each Servicer, each Originator and their respective Affiliates, (b) does not
have any direct financial interest in or any material indirect financial
interest in the Depositor, the Seller, either Originator, either Servicer or any
Affiliate thereof, and (c) is not connected with the Depositor, the Seller,
either Originator, either Servicer or any Affiliate thereof as an officer,
employee, promoter, underwriter, trustee, trust administrator, partner, director
or Person performing similar functions; provided, however, that a Person shall
not fail to be Independent of the Depositor, the Seller, either Originator,
either Servicer or any Affiliate thereof merely because such Person is the
beneficial owner of 1% or less of any class of securities issued by the
Depositor, the Seller, either Originator, either Servicer or any Affiliate
thereof, as the case may be.
"Independent Contractor": Either (i) any Person (other than
the Servicers) that would be an "independent contractor" with respect to REMIC I
within the meaning of Section 856(d)(3) of the Code if REMIC I were a real
estate investment trust (except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35% or more of any Class of Certificates), so long as REMIC I does
not receive or derive any income from such Person and provided that the
relationship between such Person and REMIC I is at arm's length, all within the
meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person
(including either Servicer) if the Trustee and the Trust Administrator have
received an Opinion of Counsel to the effect that the taking of any action in
respect of any REO Property by such Person, subject to any conditions therein
specified, that is otherwise herein contemplated to be taken by an Independent
Contractor will not cause such REO Property to cease to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code (determined
without regard to the exception applicable for purposes of Section 860D(a) of
the Code), or cause any income realized in respect of such REO Property to fail
to qualify as Rents from Real Property.
"Initial Deposit": $________ in cash to be deposited by the
Depositor with the Trust Administrator on or before the Closing Date, which
represents with respect to each Mortgage Loan having a first payment date due in
______________, interest accrued at the Net Mortgage Rate for each such Mortgage
Loan for the initial Interest Accrual Period.
"Insurance Agreement": The Insurance and Indemnity Agreement,
dated as of _________________, among the Depositor, the Seller, the Servicers
and the Certificate Insurer, as amended or supplemented in accordance with the
provisions thereof.
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"Insurance Payment": Any payment made by the Certificate
Insurer under the Policy with respect to the Class A Certificates.
"Insurance Proceeds": Proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with the procedures that the
related Servicer would follow in servicing mortgage loans held for its own
account, subject to the terms and conditions of the related Mortgage Note and
Mortgage.
"Interest Accrual Period": With respect to any Distribution
Date and the Class A Certificates, the Class CE Certificates, the REMIC I
Regular Interests (other than REMIC I Regular Interest I-LTP) and the REMIC II
Regular Interests (other than REMIC II Regular Interest II-LTP), the one-month
period ending on the last day of the calendar month preceding the month in which
such Distribution Date occurs.
"Interest Distribution Amount": With respect to any
Distribution Date and any Class of Class A Certificates and any Class CE
Certificates, the aggregate Accrued Certificate Interest on the Certificates of
such Class for such Distribution Date, plus with respect to each Class of Class
A Certificates any undistributed Interest Distribution Amounts from any previous
Distribution Date for which no Insurance Payment relating to such Interest
Distribution Amounts has been previously paid to Holders of each Class of Class
A Certificates.
"Late Collections": With respect to any Mortgage Loan and any
Due Period, all amounts received subsequent to the Determination Date
immediately following such Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of principal and/or interest due (without
regard to any acceleration of payments under the related Mortgage and Mortgage
Note) but delinquent for such Due Period and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of
the following events: (i) such Mortgage Loan is paid in full; (ii) a Final
Recovery Determination is made as to such Mortgage Loan; or (iii) such Mortgage
Loan is removed from REMIC I by reason of its being purchased, sold or replaced
pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section
10.01. With respect to any REO Property, either of the following events: (i) a
Final Recovery Determination is made as to such REO Property; or (ii) such REO
Property is removed from REMIC I by reason of its being purchased pursuant to
Section 10.01.
"Liquidation Proceeds": The amount (other than Insurance
Proceeds or amounts received in respect of the rental of any REO Property prior
to REO Disposition) received by the applicable Servicer in connection with (i)
the taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage
Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the
repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by Section 2.03, Section 3.16(c), Section 3.23 or Section
10.01.
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"Loan-to-Value Ratio": As of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at such date (and the principal balance of
any related first-lien Mortgage Loan, with respect to any second-lien Mortgage
Loan) and the denominator of which is the Value of the related Mortgaged
Property.
"Lockout Certificates": The Class A-7 Certificates.
"Lockout Certificate Percentage": For each Distribution Date,
the percentage equal to the aggregate Certificate Principal Balance of the Class
A-7 Certificates immediately prior to such Distribution Date divided by the sum
of the aggregate Certificate Principal Balances of the Class A Certificates
immediately prior to such Distribution Date.
"Lockout Distribution Percentage": With respect to any
Distribution Date, the percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Lockout Distribution Percentage
--------------------------------------------- -------------------------------------------------------
<S> <C>
___________ through ___________ __%
___________ through ___________ __% of the Lockout Certificate Percentage
___________ through ___________ __% of the Lockout Certificate Percentage
___________ through ___________ ___% of the Lockout Certificate Percentage
the lesser of (x) ___% of the Lockout
___________ and thereafter Certificate Percentage and (y) ___%
</TABLE>
Notwithstanding the foregoing, if the Certificate Principal Balances of the
Class A Certificates (other than the Lockout Certificates) have been reduced to
zero, the Lockout Distribution Percentage will be equal to ___%.
"Majority Class CE Certificateholder": Any single Holder or
group of Holders of Class CE Certificates representing a greater than 50%
Percentage Interest in such Class.
"Master Servicer": ___________________ or any successor master
servicer appointed as herein provided, in its capacity as Master Servicer
hereunder.
"Master Servicing Fee": With respect to each Mortgage Loan and
for any calendar month, an amount equal to one month's interest (or in the event
of any payment of interest which accompanies a Principal Prepayment in full or
in part made by the Mortgagor during such calendar month, interest for the
number of days covered by such payment of interest) at the applicable Master
Servicing Fee Rate on the same principal amount on which interest on such
Mortgage Loan accrues for such calendar month.
"Master Servicing Fee Rate": With respect to each Mortgage
Loan identified on Part A of Schedule 1 hereto ____% per annum. With respect to
each Mortgage Loan identified on Part B of Schedule 1 hereto ____% per annum.
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"Maximum I-LT9 Uncertificated Interest Deferral Amount": With
respect to any Distribution Date, the excess of (i) accrued interest at the
REMIC I Remittance Rate applicable to REMIC I Regular Interest I-LT9 for such
Distribution Date on a balance equal to the Uncertificated Balance of REMIC I
Regular Interest I-LT9 minus the REMIC I Overcollateralized Amount, in each case
for such Distribution Date, over (ii) Uncertificated Interest on REMIC II
Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular Interest
II-LT6, REMIC II Regular Interest II-LT7 and REMIC II Regular Interest II-LT8
for such Distribution Date.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by the related Mortgagor from time to time under the related Mortgage
Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or
Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction
in the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the related Servicer pursuant to Section 3.07; and (c) on the assumption that
all other amounts, if any, due under such Mortgage Loan are paid when due.
["Moody's": Moody's Investors Service, Inc. or its successor
in interest.]
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien or a second lien on, or first priority or second priority
security interest in, a Mortgaged Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned
to the Trustee and delivered to the Trust Administrator pursuant to Section 2.01
or Section 2.03(d) of this Agreement, as held from time to time as a part of the
Trust Fund, the Mortgage Loans so held being identified in the Mortgage
Loan Schedule.
"Mortgage Loan Purchase Agreements": The agreement among the
Depositor, the Seller and __________________, in its capacity as an Originator,
regarding the transfer of certain of the Mortgage Loans by the Seller to or at
the direction of the Depositor (the "___________ Mortgage Loan Purchase
Agreement") and the agreement among the Depositor, the Seller and __________, in
its capacity as an Originator, regarding the transfer of certain of the Mortgage
Loans by the Seller to or at the direction of the Depositor (the "__________
Mortgage Loan Purchase Agreement"), each substantially in the form of Exhibit D
annexed hereto.
"Mortgage Loan Schedule": As of any date, the list of Mortgage
Loans included in REMIC I on such date, attached hereto as Schedule 1. The
Mortgage Loan Schedule shall set forth the following information with respect to
each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the
state and zip code;
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(iv) a code indicating whether the Mortgaged Property is
owner-occupied;
(v) the type of Residential Dwelling constituting the
Mortgaged Property;
(vi) the original months to maturity;
(vii) the stated remaining months to maturity from the Cut-off
Date based on the original amortization schedule;
(viii) the Loan-to-Value Ratio at origination;
(ix) the Mortgage Rate in effect immediately following the
Cut-off Date;
(x) the date on which the first Monthly Payment was due on the
Mortgage Loan;
(xi) the stated maturity date;
(xii) the amount of the Monthly Payment at origination;
(xiii) the amount of the Monthly Payment due on the first Due
Date after the Cut-off Date;
(xiv) the last Due Date on which a Monthly Payment was actually
applied to the unpaid Stated Principal Balance;
(xv) the original principal amount of the Mortgage Loan;
(xvi) the Scheduled Principal Balance of the Mortgage Loan as of
the close of business on the Cut-off Date;
(xvii) [intentionally omitted];
(xviii) [intentionally omitted];
(xix) a code indicating the purpose of the Mortgage Loan (I.E.,
purchase financing, Rate/Term Refinancing, Cash-Out
Refinancing);
(xx) [intentionally omitted];
(xxi) [intentionally omitted];
(xxii) the Mortgage Rate at origination;
(xxiii) [intentionally omitted];
(xxiv) a code indicating the documentation program (I.E., Full
Documentation, Limited Documentation, Stated Income
Documentation);
(xxv) [intentionally omitted];
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(xxvi) [intentionally omitted];
(xxvii) the risk grade;
(xxviii) [intentionally omitted];
(xxix) [intentionally omitted];
(xxx) [intentionally omitted];
(xxxi) the Value of the Mortgaged Property;
(xxxii) the sale price of the Mortgaged Property, if applicable;
(xxxiii) the actual unpaid principal balance of the Mortgage Loan
as of the Cut-off Date;
(xxxiv) the type and term of the related Prepayment Charge;
(xxxv) [intentionally omitted];
(xxxvi) [intentionally omitted];
(xxxvii) [intentionally omitted];
(xxxviii) [intentionally omitted];
(xxxix) [intentionally omitted];
(xl) the program code;
(xli) whether the Mortgage Loan is a first or second lien
Mortgage Loan.
The Mortgage Loan Schedule shall be divided into two parts,
Part A includes the Mortgage Loans initially serviced by New Century and Part B
includes the Mortgage Loans initially serviced by Option One. Each part of the
Mortgage Loan Schedule shall set forth the following information with respect to
the Mortgage Loans in the aggregate as of the Cut-Off Date: (1) the number of
Mortgage Loans; (2) the current principal balance of the Mortgage Loans; (3) the
weighted average Mortgage Rate of the Mortgage Loans; and (4) the weighted
average maturity of the Mortgage Loans. The Mortgage Loan Schedule shall be
amended from time to time by the Depositor in accordance with the provisions of
this Agreement. With respect to any Qualified Substitute Mortgage Loan, the
Cut-off Date shall refer to the related Cut-off Date for such Mortgage Loan,
determined in accordance with the definition of Cut-off Date herein.
"Mortgage Note": The original executed note or other evidence
of the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on
Schedule 1 from time to time, and any REO Properties acquired in respect
thereof.
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"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, including any REO Property, consisting of an Estate in Real
Property improved by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Monthly Excess Cashflow": With respect to any
Distribution Date, the sum of (i) any Overcollateralization Reduction Amount for
such Distribution Date and (ii) the excess of (x) the Available Distribution
Amount for such Distribution Date over (y) the sum for such Distribution Date of
(A) the Interest Distribution Amounts payable to the holders of the Class A
Certificates and (B) the sum of the amounts described in clauses (b)(i) through
(iii) of the definition of Principal Distribution Amount.
"Net Monthly Excess Spread": With respect to any Distribution
Date, the excess of (x) the Available Distribution Amount for such Distribution
Date over (y) the sum for such Distribution Date of (A) the Interest
Distribution Amount payable to the holders of the Class A Certificates and (B)
the sum of the amounts described in clauses (b)(i) through (iii) of the
definition of Principal Distribution Amount.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the
related REO Property) as of any date of determination, a per annum rate of
interest equal to the then applicable Mortgage Rate for such Mortgage Loan minus
the Servicing Fee Rate.
"Net WAC Pass-Through Rate": With respect to REMIC II Regular
Interest II-LT7 and the Class A-6 Certificates and any Distribution Date, a per
annum rate equal to the fraction, expressed as a percentage, the numerator of
which is (i) an amount equal to (A) 1/12 of the aggregate Scheduled Principal
Balance of the then outstanding Mortgage Loans and REO Properties multiplied by
the weighted average of the Expense Adjusted Mortgage Rates on such Mortgage
Loans and REO Properties minus (B) the amount of the Certificate Insurer Premium
payable to the Certificate Insurer with respect to the Policy for such
Distribution Date, and the denominator of which is (ii) an amount equal to 1/12
of the aggregate Scheduled Principal Balance of the then outstanding Mortgage
Loans and REO Properties.
"New Lease": Any lease of REO Property entered into on behalf
of REMIC I, including any lease renewed or extended on behalf of REMIC I, if
REMIC I has the right to renegotiate the terms
of such lease.
"Nonrecoverable P&I Advance": Any P&I Advance previously made
or proposed to be made in respect of a Mortgage Loan or REO Property that, in
the good faith business judgment of the related Servicer, will not or, in the
case of a proposed P&I Advance, would not be ultimately recoverable from related
Late Collections, Insurance Proceeds or Liquidation Proceeds on such Mortgage
Loan or REO Property as provided herein.
"Nonrecoverable Servicing Advance": Any Servicing Advance
previously made or proposed to be made in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the related Servicer, will
not or, in the case of a proposed Servicing Advance, would not be ultimately
recoverable from related Late Collections, Insurance Proceeds or Liquidation
Proceeds on such Mortgage Loan or REO Property as provided herein.
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"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": With respect to the Class CE Certificates
and any Distribution Date, the Uncertificated Balance of the REMIC II Regular
Interests (other than the Uncertificated Balance of REMIC II Regular Interest
II-LTP) for such Distribution Date.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), and by the Treasurer, the Secretary, or one of the
assistant treasurers or assistant secretaries of related Servicer, the related
Originator, the Seller or the Depositor, as applicable.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be salaried counsel for the Depositor or either Servicer,
acceptable to the Trustee and the Certificate Insurer, if such opinion is
delivered to the Trustee, or acceptable to the Trust Administrator and the
Certificate Insurer, if such opinion is to be delivered to the Trust
Administrator, except that any opinion of counsel relating to (a) the
qualification of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of Independent counsel.
"Original Mortgage Loan": Any of the Mortgage Loans included
in REMIC I as of the Closing Date.
"Originators": ___________, or its successor in interest, in
its capacity as an Originator under the _____________ Mortgage Loan Purchase
Agreement, and __________, or its successor in interest, in its capacity as an
Originator under the __________ Mortgage Loan Purchase Agreement.
"Overcollateralized Amount": With respect to any Distribution
Date, the excess, if any, of (a) the aggregate Stated Principal Balances of the
Mortgage Loans and REO Properties immediately following such Distribution Date
over (b) the sum of the aggregate Certificate Principal Balances of the Class A
Certificates and the Class P Certificates as of such Distribution Date (after
taking into account the payment of the amounts described in clauses (b)(i)
through (iv) of the definition of Principal Distribution Amount on such
Distribution Date).
"Overcollateralization Deficiency Amount": With respect to any
Distribution Date, the excess, if any, of (a) the Required Overcollateralized
Amount applicable to such Distribution Date over (b) the Overcollateralized
Amount applicable to such Distribution Date prior to taking into account the
payment of any Overcollateralization Increase Amount on such Distribution Date.
"Overcollateralization Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Overcollateralization Deficiency Amount
as of such Distribution Date (after taking into account the payment of the
Principal Distribution Amount on such Distribution Date, exclusive of the
payment of any Overcollateralization Increase Amount) and (b) the amount of
Accrued Certificate Interest payable on the Class CE Certificates on such
Distribution Date as reduced by any Cumulative Insurance Payments or Realized
Losses allocated thereto with respect to such Distribution Date pursuant to
Section 4.04.
"Overcollateralization Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralized Amount and (b) the sum of the amounts available for
distribution specified in clauses (b)(i) through (iii) of the definition of
Principal Distribution
Amount.
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"Overcollateralization Percentage": With respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the Overcollateralized Amount, and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans and REO Properties as
of the last day of the related Due Period.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to:
(i) the Class A-1 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(ii) the Class A-2 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(iii) the Class A-3 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(iv) the Class A-4 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(v) the Class A-5 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(vi) the Class A-6 Certificates, for any Distribution
Date, the lesser of (i) a fixed rate equal to _____%
per annum and (ii) the Net WAC Pass-Through Rate for
such Distribution Date;
(vii) the Class A-7 Certificates, for any Distribution
Date, a fixed rate equal to _____% per annum;
(viii) the Class CE Certificates, for any Distribution Date,
a rate per annum equal to the percentage equivalent
of a fraction, the numerator of which is the sum of
the amounts calculated pursuant to clauses (a)
through (j) below, and the denominator of which is
the Uncertificated Balance of the REMIC II Regular
Interests (other than the Uncertificated Balance of
REMIC II Regular Interest II-LTP). For purposes of
calculating the Pass-Through Rate for the Class CE
Certificates, the numerator is equal to the sum of
the following components:
(a) the REMIC II Remittance Rate for REMIC
II Regular Interest II- LT1 minus two (2) times the
weighted average of the REMIC II Remittance Rates for
REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4,
REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7,
REMIC II Regular Interest II- LT8 and REMIC II
Regular Interest II-LT9, with the rate on REMIC II
Regular Interest II-LT9 equal to zero for the purpose
of this calculation, applied to an amount equal to
the Uncertificated Balance of REMIC II Regular
Interest II-LT1;
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(b) the weighted average of the REMIC II
Remittance Rates for REMIC II Regular Interest
II-LT2, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II-LT4, REMIC II Regular Interest
II-LT5, REMIC II Regular Interest II-LT6, REMIC II
Regular Interest II-LT7 and REMIC II Regular Interest
II-LT8 minus two (2) times the weighted average of
the REMIC II Remittance Rates for REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3,
REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT6,
REMIC II Regular Interest II-LT7, REMIC II Regular
Interest II-LT8 and REMIC II Regular Interest II-LT9,
with the rate on REMIC II Regular Interest II-LT9
equal to zero for the purpose of this calculation,
applied to an amount equal to the sum of the
Uncertificated Balances of REMIC II Regular Interest
II-LT2, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II- LT4, REMIC II Regular Interest
II-LT5, REMIC II Regular Interest II-LT6, REMIC II
Regular Interest II-LT7 and REMIC II Regular Interest
II-LT8;
(c) the REMIC II Remittance Rate for REMIC
II Regular Interest II- LT9 minus two (2) times the
weighted average of the REMIC II Remittance Rates for
REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4,
REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7,
REMIC II Regular Interest II- LT8 and REMIC II
Regular Interest II-LT9, with the rate on REMIC II
Regular Interest II-LT9 equal to zero for the purpose
of this calculation, applied to an amount equal to
the Uncertificated Balance of REMIC II Regular
Interest II-LT9; and
(d) 100% of the interest on REMIC II Regular
Interest II-LT2S;
(e) 100% of the interest on REMIC II Regular
Interest II-LT3S;
(f) 100% of the interest on REMIC II Regular
Interest II-LT4S;
(g) 100% of the interest on REMIC II Regular
Interest II-LT5S;
(h) 100% of the interest on REMIC II Regular
Interest II-LT6S;
(i) 100% of the interest on REMIC II Regular
Interest II-LT7S; and
(j) 100% of the interest on REMIC II Regular
Interest II-LT8S.
"Percentage Interest": With respect to any Class of
Certificates (other than the Residual Certificates), the undivided percentage
ownership in such Class evidenced by such Certificate, expressed as a
percentage, the numerator of which is the initial Certificate Principal Balance
represented by such Certificate and the denominator of which is the aggregate
initial Certificate Principal Balance of all of the Certificates of such Class.
The Class A Certificates are issuable only in minimum Percentage Interests
corresponding to minimum initial Certificate Principal Balances of $10,000 and
integral multiples of $1.00 in excess thereof. The Class P Certificates are
issuable only in Percentage Interests corresponding to initial Certificate
Principal Balances of $20 and integral multiples thereof. The Class CE
Certificates are issuable only in minimum Percentage Interests corresponding to
minimum initial Certificate Principal Balances of $10,000 and integral multiples
of $1.00 in excess thereof; provided, however, that a single Certificate of
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such Class of Certificates may be issued having a Percentage Interest
corresponding to the remainder of the aggregate initial Certificate Principal
Balance of such Class or to an otherwise authorized denomination for such Class
plus such remainder. With respect to any Residual Certificate, the undivided
percentage ownership in such Class evidenced by such Certificate, as set forth
on the face of such Certificate. The Residual Certificates are issuable in
minimum Percentage Interests of 20%.
"Permitted Investments": Any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
regardless of whether issued by the Depositor, either Servicer, the Trustee, the
Trust Administrator or any of their respective Affiliates:
(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States; provided, however, that any obligation of, or guaranteed by,
Freddie Mac or Fannie Mae, other than a senior debt or a mortgage
participation or pass-through certificate guaranteed by Freddie Mac or
Fannie Mae shall be a Permitted Investment only if, at the time of
investment, such investment is acceptable to the Certificate Insurer;
(ii) demand and time deposits in, certificates of
deposit of, or bankers' acceptances issued by, any Depository
Institution;
(iii) repurchase obligations with respect to any
security described in clause (i) above entered into with a Depository
Institution (acting as principal);
(iv) securities bearing interest or sold at a
discount that are issued by any corporation incorporated under the laws
of the United States of America or any state thereof and that are rated
by each Rating Agency that rates such securities in its highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing for such investment;
(v) commercial paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than 30
days after the date of acquisition thereof) that is rated by each
Rating Agency that rates such securities in its highest short-term
unsecured debt rating available at the time of such investment;
(vi) units of money market funds that have been rated
"P-1" by Moody's and "AAAm" by S&P; and
(viii) if previously confirmed in writing to the
Trustee and the Trust Administrator, any other demand, money market or
time deposit, or any other obligation, security or investment, as may
be acceptable to the Rating Agencies and the Certificate Insurer as a
permitted investment of funds backing securities having ratings
equivalent to its highest initial rating of the Class A Certificates;
provided, however, that no instrument described hereunder shall evidence either
the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations.
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"Permitted Transferee": Any Transferee of a Residual
Certificate other than a Disqualified Organization or Non-United States Person.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"P&I Advance": As to any Mortgage Loan or REO Property, any
advance made by the related Servicer in respect of any Distribution Date
pursuant to Section 4.03.
"Plan": Any employee benefit plan or certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and bank collective investment funds and insurance company general
or separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA and Section 4975 of the Code.
"Policy": The Financial Guaranty Insurance Policy (No.
50752-N) issued by the Certificate Insurer relating to the Class A Certificates,
including any endorsements thereto, attached hereto as Exhibit B.
"Policy Payments Account": The account established pursuant to
Section 9.04 hereof.
"Premium Supplement": As defined in the Insurance Agreement.
"Prepayment Assumption": A ___% Prepayment Vector. The
Prepayment Assumption is used solely for determining the accrual of original
issue discount on the Certificates for federal income tax purposes. A ___%
Prepayment Vector assumes that the outstanding balance of a pool of mortgage
loans prepays at a rate of ____% CPR in the first month of the life of such
pool, such rate increasing by an additional approximate ____% CPR (precisely
20/11, expressed as a percentage) each month thereafter through the eleventh
month of the life of such pool, and such rate thereafter remaining at __% CPR
for the remainder of the life of such pool. A CPR (or Constant Prepayment Rate)
represents an annualized constant assumed rate of prepayment each month of a
pool of mortgage loans relative to its outstanding principal balance for the
life of such pool.
"Prepayment Charge": With respect to any Prepayment Period,
any prepayment premium, penalty or charge payable by a Mortgagor in connection
with any Principal Prepayment on a Mortgage Loan pursuant to the terms of the
related Mortgage Note (other than any Servicer Prepayment Charge Payment
Amount).
"Prepayment Charge Schedule": As of any date, the list of
Prepayment Charges on the Mortgage Loans included in REMIC I on such date,
attached hereto as Schedule 2 (including the Prepayment Charge Summary attached
thereto). The Prepayment Charge Schedule shall set forth the following
information with respect to each Prepayment Charge:
(i) the Mortgage Loan identifying number;
(ii) a code indicating the type of Prepayment Charge;
(iii) the state of origination of the related Mortgage Loan;
(iv) the date on which the first monthly payment was due on the
related Mortgage Loan;
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(v) the term of the related Mortgage Loan; and
(vi) the principal balance of the related Mortgage Loan as of
the Cut-off Date.
The Prepayment Charge Schedule shall be amended from time to
time by the Depositor in accordance with the provisions of this Agreement.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was during the related Prepayment
Period the subject of a Principal Prepayment in full or in part that was applied
by the related Servicer to reduce the outstanding principal balance of such loan
on a date preceding the Due Date in the succeeding Prepayment Period, an amount
equal to interest at the applicable Net Mortgage Rate on the amount of such
Principal Prepayment for the number of days commencing on the date on which the
prepayment is applied and ending on the last day of the related Prepayment
Period. The obligations of the Servicers in respect of any Prepayment Interest
Shortfall are set forth in Section 3.24.
"Prepayment Period": With respect to any Distribution Date,
the calendar month preceding the calendar month in which such Distribution Date
occurs.
"Principal Distribution Amount": With respect to any
Distribution Date, the lesser of:
(a) the excess of the Available Distribution Amount over
the amount payable on the Class A Certificates
pursuant to Section 4.01(a)(2)(i); and
(b) the sum of:
(i) the principal portion of each Monthly Payment on
the Mortgage Loans due during the related Due Period,
whether or not received on or prior to the related
Determination Date;
(ii) the Stated Principal Balance of any Mortgage
Loan that was purchased during the related Prepayment
Period pursuant to or as contemplated by Section
2.03, Section 3.16(c) or Section 10.01 and the amount
of any shortfall deposited in the Collection Account
in connection with the substitution of a Deleted
Mortgage Loan pursuant to Section 2.03 during the
related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds
and REO Principal Amortization) received during the
related Prepayment Period, net of any portion thereof
that represents a recovery of principal for which an
advance was made by the related Servicer pursuant to
Section 4.03 in respect of a preceding Distribution
Date;
(iv) the principal portion of any Realized Losses
incurred or deemed to have been incurred on the
Mortgage Loans in the calendar month preceding such
Distribution Date and the principal portion of any
Realized Losses allocated to the Class A Certificates
on previous Distribution Dates but not paid under the
Policy due to a Certificate Insurer Default and not
previously paid pursuant to Section
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4.01(a)(2)(iii)(b), in each case from Accrued
Certificate Interest on the Class CE Certificates for
such Distribution Date; and
(v) the amount of any Overcollateralization Increase
Amount for such Distribution Date;
minus:
(vi) the amount of any Overcollateralization
Reduction Amount for such Distribution Date.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing the full
amount of scheduled interest due on any Due Date in any month or months
subsequent to the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan or REO
Property to be purchased pursuant to or as contemplated by Section 2.03, Section
3.16(c) or Section 10.01, and as confirmed by an Officers' Certificate from the
related Servicer or the Master Servicer to the Trustee and the Trust
Administrator, an amount equal to the sum of (i) 100% of the Stated Principal
Balance thereof as of the date of purchase (or such other price as provided in
Section 10.01), (ii) in the case of (x) a Mortgage Loan, accrued interest on
such Stated Principal Balance at the applicable Net Mortgage Rate in effect from
time to time from the Due Date as to which interest was last covered by a
payment by the Mortgagor or an advance by the related Servicer, which payment or
advance had as of the date of purchase been distributed pursuant to Section
4.01, through the end of the calendar month in which the purchase is to be
effected and (y) an REO Property, the sum of (1) accrued interest on such Stated
Principal Balance at the applicable Net Mortgage Rate in effect from time to
time from the Due Date as to which interest was last covered by a payment by the
Mortgagor or an advance by the related Servicer through the end of the calendar
month immediately preceding the calendar month in which such REO Property was
acquired, plus (2) REO Imputed Interest for such REO Property for each calendar
month commencing with the calendar month in which such REO Property was acquired
and ending with the calendar month in which such purchase is to be effected, net
of the total of all net rental income, Insurance Proceeds, Liquidation Proceeds
and P&I Advances that as of the date of purchase had been distributed as or to
cover REO Imputed Interest pursuant to Section 4.01, (iii) any unreimbursed
Servicing Advances and P&I Advances (including Nonrecoverable P&I Advances and
Nonrecoverable Servicing Advances) and any unpaid Servicing Fees allocable to
such Mortgage Loan or REO Property, (iv) any amounts previously withdrawn from
the Collection Account in respect of such Mortgage Loan or REO Property pursuant
to Section 3.11(a)(ix) and Section 3.16(b), and (v) in the case of a Mortgage
Loan required to be purchased pursuant to Section 2.03, expenses reasonably
incurred or to be incurred by the related Servicer, the Trustee or the Trust
Administrator in respect of the breach or defect giving rise to the purchase
obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan
substituted for a Deleted Mortgage Loan pursuant to the terms of this Agreement
which must, on the date of such substitution, (i) have an outstanding principal
balance, after application of all scheduled payments of principal and interest
due during or prior to the month of substitution, not in excess of the Scheduled
Principal Balance of the Deleted Mortgage Loan as of the Due Date in the
calendar month during which the substitution occurs, (ii) have a Mortgage Rate
not less than (and not more than one percentage point in excess of) the Mortgage
Rate of the Deleted Mortgage Loan, (iii) [reserved], (iv) [reserved], (v)
[reserved], (vi) [reserved], (vii) have a remaining term to maturity not greater
than (and not more than one year less than) that of the Deleted
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Mortgage Loan, (viii) have the same Due Date as the Due Date on the Deleted
Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of substitution
equal to or lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as
of such date, (x) have a risk grading determined by the related Originator at
least equal to the risk grading assigned on the Deleted Mortgage Loan and (xi)
conform to each representation and warranty set forth in Section 6 of the
related Mortgage Loan Purchase Agreement applicable to the Deleted Mortgage
Loan. In the event that one or more mortgage loans are substituted for one or
more Deleted Mortgage Loans, the amounts described in clause (i) hereof shall be
determined on the basis of aggregate principal balances, the Mortgage Rates
described in clause (ii) hereof shall be determined on the basis of weighted
average Mortgage Rates, the terms described in clause (vii) hereof shall be
determined on the basis of weighted average remaining term to maturity, the
Loan-to-Value Ratios described in clause (ix) hereof shall be satisfied as to
each such mortgage loan, the risk gradings described in clause (x) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (xi) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
"Rate/Term Refinancing": With respect to Mortgage Loan
serviced by ___________, a Refinanced Mortgage Loan, the proceeds of which are
not more than a nominal amount in excess of the existing first mortgage loan and
any subordinate mortgage loan on the related Mortgaged Property and related
closing costs, and were used exclusively (except for such nominal amount) to
satisfy the then existing first mortgage loan and any subordinate mortgage loan
of the Mortgagor on the related Mortgaged Property and to pay related closing
costs. With respect to a Mortgage Loan serviced by ____________, a Refinanced
Mortgage Loan, the proceeds of which were not more than the greater of (a)
$1,000 or (b) 1% of the principal balance of an existing first mortgage on the
related Mortgaged Property and the principal balance of any existing subordinate
mortgages on the related Mortgaged Property, in either case, in excess of the
principal balance of an existing first mortgage on the related Mortgaged
Property, the principal balance of any existing subordinate mortgages on the
related Mortgaged Property and related closing costs, and were used to satisfy
such existing first mortgage, or any such subordinate mortgages, to pay related
closing costs and to provide to the Mortgagor not more than $1,000 or the amount
calculated in clause (b) above, as applicable, in addition thereto.
Notwithstanding the foregoing, with respect to ______________, any Refinanced
Mortgage Loan with a Loan-to-Value Ratio greater than 80% that was used for the
purpose of debt consolidation is considered a Rate/Term Refinancing.
"Rating Agency or Rating Agencies": [Moody's] and [S&P] or
their successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating agencies, or other comparable Persons, designated by the Depositor and
the Certificate Insurer, notice of which designation shall be given to the
Trustee, the Trust Administrator and each Servicer.
"Realized Loss": With respect to each Mortgage Loan as to
which a Final Recovery Determination has been made, an amount (not less than
zero) equal to (i) the unpaid principal balance of such Mortgage Loan as of the
commencement of the calendar month in which the Final Recovery Determination was
made, plus (ii) accrued interest from the Due Date as to which interest was last
paid by the Mortgagor through the end of the calendar month in which such Final
Recovery Determination was made, calculated in the case of each calendar month
during such period (A) at an annual rate equal to the annual rate at which
interest was then accruing on such Mortgage Loan and (B) on a principal amount
equal to the Stated Principal Balance of such Mortgage Loan as of the close of
business on the Distribution Date during such calendar month, plus (iii) any
amounts previously withdrawn from the Collection Account in respect of such
Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (iv)
the proceeds, if any, received in respect of such Mortgage Loan during the
calendar month in which such Final
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Recovery Determination was made, net of amounts that are payable therefrom to
the related Servicer with respect to such Mortgage Loan pursuant to Section
3.11(a)(iii).
With respect to any REO Property as to which a Final Recovery
Determination has been made, an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of REMIC I, plus (ii) accrued
interest from the Due Date as to which interest was last paid by the Mortgagor
in respect of the related Mortgage Loan through the end of the calendar month
immediately preceding the calendar month in which such REO Property was
acquired, calculated in the case of each calendar month during such period (A)
at an annual rate equal to the annual rate at which interest was then accruing
on the related Mortgage Loan and (B) on a principal amount equal to the Stated
Principal Balance of the related Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such Final Recovery Determination was made, plus (iv)
any amounts previously withdrawn from the Collection Account in respect of the
related Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus
(v) the aggregate of all P&I Advances and Servicing Advances (in the case of
Servicing Advances, without duplication of amounts netted out of the rental
income, Insurance Proceeds and Liquidation Proceeds described in clause (vi)
below) made by the related Servicer in respect of such REO Property or the
related Mortgage Loan for which such Servicer has been or, in connection with
such Final Recovery Determination, will be reimbursed pursuant to Section 3.23
out of rental income, Insurance Proceeds and Liquidation Proceeds received in
respect of such REO Property, minus (vi) the total of all net rental income,
Insurance Proceeds and Liquidation Proceeds received in respect of such REO
Property that has been, or in connection with such Final Recovery Determination,
will be transferred to the Distribution Account pursuant to Section 3.23.
With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation.
With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the portion, if any, of the reduction in
each affected Monthly Payment attributable to a reduction in the Mortgage Rate
imposed by a court of competent jurisdiction. Each such Realized Loss shall be
deemed to have been incurred on the Due Date for each affected Monthly Payment.
"Record Date": With respect to each Distribution Date and any
Book-Entry Certificate, the Business Day immediately preceding such Distribution
Date. With respect to each Distribution Date and any other Certificates,
including any Definitive Certificates, the last Business Day of the month
immediately preceding the month in which such Distribution Date occurs.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of
which were not used to purchase the related Mortgaged Property.
"Regular Certificate": Any Class A Certificate, Class CE
Certificate or Class P Certificate.
"Regular Interest": A "regular interest" in a REMIC within the
meaning of Section 860G(a)(1) of the Code.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
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"Relief Act Interest Shortfall": With respect to any
Distribution Date and any Mortgage Loan, any reduction in the amount of interest
collectible on such Mortgage Loan for the most recently ended calendar month as
a result of the application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC I": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
with respect to which a REMIC election is to be made, consisting of: (i) such
Mortgage Loans and Prepayment Charges as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto, and together with
all collections thereon and proceeds thereof; (ii) any REO Property, together
with all collections thereon and proceeds thereof; (iii) the Trustee's rights
with respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to this Agreement and any proceeds thereof; (iv) the
Depositor's rights under the Mortgage Loan Purchase Agreements (including any
security interest created thereby); (v) the Collection Account (other than any
amounts representing any Servicer Prepayment Charge Payment Amount), the
Distribution Account (other than any amounts representing any Servicer
Prepayment Charge Payment Amount), the Expense Account and any REO Account, and
such assets that are deposited therein from time to time and any investments
thereof, together with any and all income, proceeds and payments with respect
thereto. Notwithstanding the foregoing, however, REMIC I specifically excludes
the Policy and all payments and other collections of principal and interest due
on the Mortgage Loans on or before the Cutoff Date and all Prepayment Charges
payable in connection with Principal Prepayments made before the Cut-off Date.
"REMIC I Interest Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to (a) the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) the REMIC I Remittance Rate for REMIC I Regular Interest I-
LT1 minus two (2) times the weighted average of the REMIC II Remittance Rates
for REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II Regular Interest
II-LT8 and REMIC II Regular Interest II-LT9, with the rate on REMIC II Regular
Interest II-LT9 equal to zero for purposes of this calculation, divided by (b)
12.
"REMIC I Overcollateralized Amount": With respect to any date
of determination, (i) __% of the aggregate Uncertificated Balances of the REMIC
I Regular Interests minus (ii) the aggregate of the Uncertificated Balances of
REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6,
REMIC I Regular Interest I-LT7 and REMIC I Regular Interest I-LT8, in each case
as of such date of determination.
"REMIC I Principal Loss Allocation Amount": With respect to
any Distribution Date, an amount equal to the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) 1 minus a fraction, the numerator of which is two times the
aggregate of the Uncertificated Balances of REMIC I Regular Interest I-LT2,
REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular
Interest I-LT5, REMIC I Regular Interest I-LT6, REMIC I Regular Interest I-LT7
and REMIC I Regular Interest I-LT8 and the denominator of which is the sum of
the Uncertificated Balances of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5,
REMIC I Regular Interest I-LT6, REMIC I Regular Interest I-LT7, REMIC I Regular
Interest I-LT8 and REMIC I Regular Interest I-LT9.
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"REMIC I Regular Interest": Any of the ten separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a "regular interest" in REMIC I. Each REMIC I Regular Interest
(other than REMIC I Regular Interest I-LTP, with respect to interest) shall
accrue interest at the related REMIC I Remittance Rate in effect from time to
time, and shall be entitled to distributions of principal, subject to the terms
and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC I Regular Interests are set forth in the
Preliminary Statement hereto.
"REMIC I Regular Interest I-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT1
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT2
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT3
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT4
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT5
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT6
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
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"REMIC I Regular Interest I-LT7": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT7
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT8": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT8
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT9": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT9
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LTP
shall be entitled to any Prepayment Charges collected by the Servicers and to a
distribution of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC I Remittance Rate": With respect to each REMIC I
Regular Interest, the weighted average of the Expense Adjusted Mortgage Rates on
the then outstanding Mortgage Loans and REO Properties.
"REMIC I Required Overcollateralized Amount": __% of the
Required Overcollateralization Amount.
"REMIC II": The segregated pool of assets consisting of all of
the REMIC I Regular Interests conveyed in trust to the Trustee, for the benefit
of REMIC III, as holder of the REMIC II Regular Interests, and the Class R-II
Certificateholders pursuant to Section 2.07, and all amounts deposited therein,
with respect to which a separate REMIC election is to be made.
"REMIC II Regular Interest": Any of the seventeen separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a "regular interest" in REMIC II. Each REMIC II Regular Interest
(other than REMIC II Regular Interest II-LTP) shall accrue interest at the
related REMIC II Remittance Rate in effect from time to time, and shall be
entitled to distributions of principal, subject to the terms and conditions
hereof, in an aggregate amount equal to its initial Uncertificated Balance as
set forth in the Preliminary Statement hereto. The designations for the
respective REMIC II Regular Interests are set forth in the Preliminary Statement
hereto.
"REMIC II Regular Interest II-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II.
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REMIC II Regular Interest II-LT1 shall accrue interest at the related REMIC II
Remittance Rate in effect from time to time, and shall be entitled to
distributions of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT7": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT7
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT8": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II.
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REMIC II Regular Interest II-LT8 shall accrue interest at the related REMIC II
Remittance Rate in effect from time to time, and shall be entitled to
distributions of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT9": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT9
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LTP
shall be entitled to any Prepayment Charges collected by the Servicers and to a
distribution of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT3S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT4S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT5S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT6S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT7S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT7S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
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"REMIC II Regular Interest II-LT8S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT8S
shall accrue interest at the related REMIC II Remittance Rate in effect
from time to time on its related Uncertificated Notional Amount.
"REMIC II Remittance Rate": With respect to REMIC II Regular
Interest II-LT1 and REMIC II Regular Interest II-LT9, the weighted average of
the Expense Adjusted Mortgage Rates on the then outstanding Mortgage Loans and
REO Properties minus, with respect to REMIC II Regular Interest II-LT1, the
product of (A) two times the sum of the Uncertificated Balances of REMIC II
Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4, REMIC II Regular II-LT5, REMIC II Regular Interest II-LT6,
REMIC II Regular Interest II-LT7 and REMIC II Regular Interest II- LT8 divided
by the sum of the Uncertificated Balances of REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II
Regular II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular Interest
II-LT7, REMIC II Regular Interest II-LT8 and REMIC II Regular Interest II-LT9
and (B) the Certificate Insurer Premium Rate. With respect to each of REMIC II
Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular Interest
II-LT6 and REMIC II Regular Interest II-LT8, a fixed rate per annum equal to the
related REMIC II Remittance Rate as set forth in the Preliminary Statement
hereto. With respect to REMIC II Regular Interest II-LT7, the lesser of (i) the
related fixed rate per annum equal to the related REMIC II Remittance Rate as
set forth in the Preliminary Statement hereto and (ii) the Net WAC Pass-Through
Rate. With respect to REMIC II Regular Interest II-LT2S, REMIC II Regular
Interest II-LT3S, REMIC II Regular Interest II-LT4S, REMIC II Regular Interest
II-LT5S, REMIC II Regular Interest II-LT6S, REMIC II Regular Interest II-LT7S
and REMIC II Regular Interest II-LT8S, a rate per annum equal to excess of the
REMIC I Remittance Rate for the related Uncertificated Corresponding Component
over the REMIC II Remittance Rate for REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular Interest
II-LT7 and REMIC II Regular Interest II- LT8, respectively.
"REMIC III": The segregated pool of assets consisting of all
of the REMIC II Regular Interests conveyed in trust to the Trustee, for the
benefit of the REMIC III Certificateholders pursuant to Section 2.09, and all
amounts deposited therein, with respect to which a separate REMIC election is to
be
made.
"REMIC III Certificate": Any Regular Certificate or Class
R-III Certificate.
"REMIC III Certificateholder": The Holder of any REMIC III
Certificate.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related provisions, and proposed, temporary
and final regulations and published rulings, notices and announcements
promulgated thereunder, as the foregoing may be in effect from time to time.
"Remittance Report": A report in form and substance acceptable
to the Trust Administrator on a magnetic disk or tape prepared by the related
Servicer pursuant to Section 4.03 with such additions, deletions and
modifications as agreed to by the Trust Administrator and such Servicer.
"Rents from Real Property": With respect to any REO Property,
gross income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
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"REO Account": Each of the accounts maintained, or caused to
be maintained, by the related Servicer in respect of an REO Property pursuant to
Section 3.23.
"REO Disposition": The sale or other disposition of an REO
Property on behalf of REMIC I.
"REO Imputed Interest": As to any REO Property, for any
calendar month during which such REO Property was at any time part of REMIC I,
one month's interest at the applicable Net Mortgage Rate on the Stated Principal
Balance of such REO Property (or, in the case of the first such calendar month,
of the related Mortgage Loan, if appropriate) as of the close of business on the
Distribution Date in such calendar month.
"REO Principal Amortization": With respect to any REO
Property, for any calendar month, the excess, if any, of (a) the aggregate of
all amounts received in respect of such REO Property during such calendar month,
whether in the form of rental income, sale proceeds (including, without
limitation, that portion of the Termination Price paid in connection with a
purchase of all of the Mortgage Loans and REO Properties pursuant to Section
10.01 that is allocable to such REO Property) or otherwise, net of any portion
of such amounts (i) payable pursuant to Section 3.23(c) in respect of the proper
operation, management and maintenance of such REO Property or (ii) payable or
reimbursable to the related Servicer pursuant to Section 3.23(d) for unpaid
Servicing Fees in respect of the related Mortgage Loan and unreimbursed
Servicing Advances and P&I Advances in respect of such REO Property or the
related Mortgage Loan, over (b) the REO Imputed Interest in respect of such REO
Property for such calendar month.
"REO Property": A Mortgaged Property acquired by the related
Servicer on behalf of REMIC I through foreclosure or deed-in-lieu of
foreclosure, as described in Section 3.23.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibit E-1 or Exhibit E-2 attached hereto.
"Required Overcollateralized Amount": With respect to any
Distribution Date, an amount equal to $_____________ subject to the following:
(i) if the Step Up Trigger has occurred, the Required Overcollateralized Amount
for such Distribution Date will be an amount equal to the entire aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties as of such
Distribution Date; (ii) if the Step Up Trigger has not occurred but the Step Up
Spread Squeeze Test is met, the Required Overcollateralized Amount for such
Distribution Date will be an amount equal to the sum of (A) the Required
Overcollateralized Amount for such Distribution Date determined as though the
Step Up Spread Squeeze Test were not met plus (B) the Spread Squeeze
Overcollateralization Increase Amount; or (iii) if neither the Step Up Trigger
has occurred nor the Step Up Spread Squeeze Test is met but the Step Down
Trigger has occurred, the Required Overcollateralized Amount for such
Distribution Date will be an amount equal to the greater of (A) ____% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and (B) the lesser of (x) $_____________ and (y) the Stepped Down Required
Overcollateralized Percentage of the aggregate Stated Principal Balance of the
Mortgage Loans and REO Properties as of such Distribution Date.
"Residential Dwelling": Any one of the following: (i) an
attached, detached or semidetached one-family dwelling, (ii) an attached,
detached or semi-detached two- to four-family dwelling, (iii) a one-family
dwelling unit in a Fannie Mae eligible condominium project, or (iv) an attached,
detached or semi-detached one-family dwelling in a planned unit development,
none of which is a co-operative,
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mobile or in the case of a Mortgage Loan serviced by New Century, a manufactured
home (as defined in 42 United States Code, Section 5402(6)).
"Residual Certificate": Any one of the Class R-I Certificates,
Class R-II Certificates or Class R-III Certificates.
"Residual Interest": The sole class of "residual interests" in
a REMIC within the meaning of Section 860G(a)(2) of the Code.
"Responsible Officer": When used with respect to the Trustee
or the Trust Administrator, the Chairman or Vice Chairman of the Board of
Directors or Trustees, the Chairman or Vice Chairman of the Executive or
Standing Committee of the Board of Directors or Trustees, the President, the
Chairman of the Committee on Trust Matters, any vice president, any assistant
vice president, the Secretary, any assistant secretary, the Treasurer, any
assistant treasurer, the Cashier, any assistant cashier, any trust officer or
assistant trust officer, the Controller and any assistant controller or any
other officer of the Trustee or the Trust Administrator, as the case may be,
customarily performing functions similar to those performed by any of the above
designated officers and, with respect to a particular matter, to whom such
matter is referred because of such officer's knowledge of and familiarity with
the particular subject.
"Rolling Delinquency Percentage": With respect to any
Distribution Date, the average of the Delinquency Percentages as of the last day
of each of the three (or one or two, in the case of the first and second
Distribution Dates) preceding calendar months.
"Scheduled Principal Balance": With respect to any Mortgage
Loan: (a) as of the Cut-off Date, the outstanding principal balance of such
Mortgage Loan as of such date, net of the principal portion of all unpaid
Monthly Payments, if any, due on or before such date; (b) as of any Due Date
subsequent to the Cut-off Date up to and including the Due Date in the calendar
month in which a Liquidation Event occurs with respect to such Mortgage Loan,
the Scheduled Principal Balance of such Mortgage Loan as of the Cut-off Date,
minus the sum of (i) the principal portion of each Monthly Payment due on or
before such Due Date but subsequent to the Cut-off Date, whether or not
received, (ii) all Principal Prepayments received before such Due Date but after
the Cut-off Date, (iii) the principal portion of all Liquidation Proceeds and
Insurance Proceeds received before such Due Date but after the Cut-off Date, net
of any portion thereof that represents principal due (without regard to any
acceleration of payments under the related Mortgage and Mortgage Note) on a Due
Date occurring on or before the date on which such proceeds were received and
(iv) any Realized Loss incurred with respect thereto as a result of a Deficient
Valuation occurring before such Due Date, but only to the extent such Realized
Loss represents a reduction in the portion of principal of such Mortgage Loan
not yet due (without regard to any acceleration of payments under the related
Mortgage and Mortgage Note) as of the date of such Deficient Valuation; and (c)
as of any Due Date subsequent to the occurrence of a Liquidation Event with
respect to such Mortgage Loan, zero. With respect to any REO Property: (a) as of
any Due Date subsequent to the date of its acquisition on behalf of the Trust
Fund up to and including the Due Date in the calendar month in which a
Liquidation Event occurs with respect to such REO Property, an amount (not less
than zero) equal to the Scheduled Principal Balance of the related Mortgage Loan
as of the Due Date in the calendar month in which such REO Property was
acquired, minus the aggregate amount of REO Principal Amortization, if any, in
respect of such REO Property for all previously ended calendar months; and (b)
as of any Due Date subsequent to the occurrence of a Liquidation Event with
respect to such REO Property, zero.
"Seller":_____________________, or its successor in interest,
in its capacity as seller under the Mortgage Loan Purchase Agreements.
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"Servicer Prepayment Charge Payment Amount": The amounts
payable by the Servicers in respect of any waived Prepayment Charges pursuant to
Section 2.05 or Section 3.01.
"Servicers": ____________ or any successor servicer appointed
as herein provided, in its capacity as servicer hereunder with respect to the
Mortgage Loans identified on Part A of Schedule 1 hereto and the Prepayment
Charges identified on Part A of Schedule 2 hereto and ____________ or any
successor servicer appointed as herein provided, in its capacity as servicer
hereunder with respect to the Mortgage Loans identified on Part B of Schedule 1
hereto and the Prepayment Charges identified on Part B of Schedule 2 hereto.
References to "related Servicer", "applicable Servicer" and similar terms shall
mean the Servicer only with respect to the Mortgage Loans and Prepayment Charges
on the applicable part of Schedule 1 and Schedule 2 attached hereto.
"Servicer Event of Default": One or more of the events
described in Section 7.01.
"Servicer Remittance Date": With respect to any Distribution
Date, ____ p.m. ________ time on the 18th day of the calendar month in which
such Distribution Date occurs or, if such 18th day is not a Business Day, the
Business Day immediately succeeding such 18th day.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by either Servicer in connection with a default, delinquency
or other unanticipated event by such Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, in respect of a
particular Mortgage Loan, (iii) the management (including reasonable fees in
connection therewith) and liquidation of any REO Property, and (iv) the
performance of its obligations under Section 3.01, Section 3.09, Section 3.14,
Section 3.16 and Section 3.23. Neither Servicer shall be required to make any
Servicing Advance in respect of a Mortgage Loan or REO Property that, in the
good faith business judgment of such Servicer, would not be ultimately
recoverable from related Insurance Proceeds or Liquidation Proceeds on such
Mortgage Loan or REO Property as provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for
any calendar month, an amount equal to one month's interest (or in the event of
any payment of interest which accompanies a Principal Prepayment in full or in
part made by the Mortgagor during such calendar month, interest for the number
of days covered by such payment of interest) at the applicable Servicing Fee
Rate on the same principal amount on which interest on such Mortgage Loan
accrues for such calendar month. A portion of such Servicing Fee may be retained
by any Sub-Servicer as its servicing compensation.
"Servicing Fee Rate": ____% per annum.
"Servicing Officer": Any officer of the applicable Servicer
involved in, or responsible for, the administration and servicing of Mortgage
Loans, whose name and specimen signature appear on a list of Servicing Officers
furnished by such Servicer to the Trust Administrator, the Trustee, the
Certificate Insurer and the Depositor on the Closing Date, as such list may from
time to time be amended.
"Single Certificate": With respect to any Class of
Certificates (other than the Class P Certificates and the Residual
Certificates), a hypothetical Certificate of such Class evidencing a Percentage
Interest for such Class corresponding to an initial Certificate Principal
Balance or Notional Amount of
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$1,000. With respect to the Class P Certificates and the Residual Certificates,
a hypothetical Certificate of such Class evidencing a 100% Percentage Interest
in such Class.
"Spread Squeeze Condition": The Spread Squeeze Condition will
be met with respect to any Distribution Date on or after which the aggregate
Stated Principal Balance of the Mortgage Loans and each REO Property remaining
in the Trust Fund is reduced to less than ___% of the aggregate Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date, if the Spread Squeeze
Percentage for such Distribution Date is less than ____%.
"Spread Squeeze Overcollateralization Increase Amount": For
any Distribution Date on which the Step Up Spread Squeeze Test is met, an amount
determined as follows:
(a) if the Spread Squeeze Condition is met for such
Distribution Date, the Spread Squeeze Overcollateralization Increase
Amount for such Distribution Date shall be equal to the product
obtained by multiplying (i) three, (ii) the excess, if any, of ____%
over the Spread Squeeze Percentage for such Distribution Date and (iii)
the aggregate Stated Principal Balance of
the Mortgage Loans as of the Cut-off Date; or
(b) if the Spread Squeeze Condition is not met for such
Distribution Date, the Spread Squeeze Overcollateralization Increase
Amount for such Distribution Date shall be equal to (A) the Spread
Squeeze Overcollateralization Increase Amount for the most recent
Distribution Date for which the Spread Squeeze Condition was met minus
(B) the product obtained by multiplying (i) one sixth of the amount
determined under clause (A) above and (ii) the number of consecutive
Distribution Dates through and including the current Distribution Date
for which the Spread Squeeze Condition was not met.
"Spread Squeeze Percentage": With respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
product of 12 and the Net Monthly Excess Spread for such Distribution Date, and
the denominator of which is the aggregate Stated Principal Balance of the
Mortgage Loans and REO Properties as of such Distribution Date.
["S&P": Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or its successor in interest.]
"Startup Day": With respect to any of REMIC I, REMIC II and
REMIC III, the day designated as such pursuant to Section 11.01(b) hereof.
"Stated Principal Balance": With respect to any Mortgage Loan:
(a) as of any date of determination up to but not including the Distribution
Date on which the proceeds, if any, of a Liquidation Event with respect to such
Mortgage Loan would be distributed, the Scheduled Principal Balance of such
Mortgage Loan as of the Cut-off Date, as shown in the Mortgage Loan Schedule,
minus the sum of (i) the principal portion of each Monthly Payment due on a Due
Date subsequent to the Cut-off Date, to the extent received from the Mortgagor
or advanced by the related Servicer and distributed pursuant to Section 4.01 on
or before such date of determination, (ii) all Principal Prepayments received
after the Cut-off Date, to the extent distributed pursuant to Section 4.01 on or
before such date of determination, (iii) all Liquidation Proceeds and Insurance
Proceeds applied by the related Servicer as recoveries of principal in
accordance with the provisions of Section 3.16, to the extent distributed
pursuant to Section 4.01 on or before such date of determination, and (iv) any
Realized Loss incurred with respect thereto as a result of a Deficient Valuation
made during or prior to the Prepayment Period for the most recent Distribution
Date coinciding
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with or preceding such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan
would be distributed, zero. With respect to any REO Property: (a) as of any date
of determination up to but not including the Distribution Date on which the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be distributed, an amount (not less than zero) equal to the Stated Principal
Balance of the related Mortgage Loan as of the date on which such REO Property
was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was
acquired before the Distribution Date in any calendar month, the principal
portion of the Monthly Payment due on the Due Date in the calendar month of
acquisition, to the extent advanced by the related Servicer and distributed
pursuant to Section 4.01 on or before such date of determination, and (ii) the
aggregate amount of REO Principal Amortization in respect of such REO Property
for all previously ended calendar months, to the extent distributed pursuant to
Section 4.01 on or before such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such REO Property
would be distributed, zero.
"Stayed Funds": If either Servicer is the subject of a
proceeding under the federal Bankruptcy Code and the making of a Remittance (as
defined in Section 7.02(b)) is prohibited by Section 362 of the federal
Bankruptcy Code, funds that are in the custody of such Servicer, a trustee in
bankruptcy or a federal bankruptcy court and should have been the subject of
such Remittance absent such prohibition.
"Step Down Cumulative Loss Test": The Step Down Cumulative
Loss Test will be met with respect to a Distribution Date as follows: (i) for
the ____ through the ____ Distribution Dates, if the Cumulative Loss Percentage
for such Distribution Date is ____% or less; (ii) for the ____ through the ----
Distribution Dates, if the Cumulative Loss Percentage for such Distribution Date
is ____% or less; (iii) for the ____ through the ____ Distribution Dates, if the
Cumulative Loss Percentage for such Distribution Date is ____% or less; (iv) for
any Distribution Date after the ____ Distribution Date, if the Cumulative Loss
Percentage for such Distribution Date is ____% or less.
"Step Down Rolling Delinquency Test": The Step Down Rolling
Delinquency Test will be met with respect to a Distribution Date if the Rolling
Delinquency Percentage for such Distribution Date is __% or less.
"Step Down Rolling Loss Test": The Step Down Rolling Loss Test
will be met with respect to a Distribution Date if the Annual Loss Percentage is
less than ____%.
"Step Down Trigger": For any Distribution Date after the ____
Distribution Date, the Step Down Trigger will have occurred if each of the Step
Down Cumulative Loss Test, the Step Down Rolling Delinquency Test and the Step
Down Rolling Loss Test is met. In no event will the Step Down Trigger be deemed
to have occurred for the ____ Distribution Date or any preceding Distribution
Date.
"Stepped Down Required Overcollateralized Percentage": For any
Distribution Date for which the Step Down Trigger has occurred, a percentage
equal to (i) the percentage equivalent of a fraction, the numerator of which is
$_____________ and the denominator of which is the aggregate Stated Principal
Balance of the Mortgage Loans and REO Properties as of such Distribution Date,
minus (ii) the percentage equivalent of a fraction, the numerator of which is
the product of (A) the percentage calculated under clause (i) above minus ____%,
multiplied by (B) the number of consecutive Distribution Dates through and
including the Distribution Date for which the Stepped Down Required
Overcollateralized Percentage is being calculated, up to a maximum of six, for
which the Step Down Trigger has occurred, and the denominator of which is six.
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"Step Up Cumulative Loss Test": The Step Up Cumulative Loss
Test will be met with respect to a Distribution Date as follows: (i) for the ___
through the ____ Distribution Dates, if the Cumulative Loss Percentage for such
Distribution Date is more than ____%; (ii) for the ____ through the ____
Distribution Dates, if the Cumulative Loss Percentage for such Distribution Date
is more than ____%; (iii) for the ____ through the ____ Distribution Dates, if
the Cumulative Loss Percentage for such Distribution Date is more than ____%;
(iv) for the ____ through the ____ Distribution Dates, if the Cumulative Loss
Percentage for such Distribution Date is more than ____%; and (v) for the ____
Distribution Date and any Distribution Date thereafter, if the Cumulative Loss
Percentage for such Distribution Date is more than ____%.
"Step Up Rolling Delinquency Test": The Step Up Rolling
Delinquency Test will be met with respect to a Distribution Date if the Rolling
Delinquency Percentage for such Distribution Date is more than ____%; provided,
however, that the Step Up Rolling Delinquency Test shall not be considered met
if the Overcollateralization Percentage is greater than or equal to the Rolling
Delinquency Percentage.
"Step Up Rolling Loss Test": The Step Up Rolling Loss Test
will be met with respect to a Distribution Date , if the Annual Loss Percentage
is equal to or more than ____%.
"Step Up Spread Squeeze Test": The Step Up Spread Squeeze Test
will be met with respect to a Distribution Date if the Spread Squeeze Condition
is met for such Distribution Date or was met for any of the five preceding
Distribution Dates.
"Step Up Trigger": For any Distribution Date, the Step Up
Trigger will have occurred if any one of the Step Up Cumulative Loss Test, the
Step Up Rolling Delinquency Test or the Step Up Rolling Loss Test is met.
"Sub-Servicer": Any Person with which either Servicer has
entered into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 and is
otherwise acceptable to the applicable Servicer.
"Sub-Servicing Agreement": The written contract between either
Servicer and a Sub- Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02.
"Substitution Shortfall Amount": As defined in Section
2.03(d).
"Tax Returns": The federal income tax return on Internal
Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as REMICs
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Termination Price": As defined in Section 10.01.
"Terminator": As defined in Section 10.01.
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"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation, or other form of assignment of any Ownership Interest in a
Certificate.
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trust Administrator": _______________________, a national
banking association, or its successor in interest, or any successor trustee
appointed as herein provided.
"Trust Fund": Collectively, all of the assets of REMIC I,
REMIC II and REMIC III.
"Trustee": _______________________, a national banking
association, or its successor in interest, or any successor trustee appointed as
herein provided.
"Uncertificated Balance": The amount of any REMIC I Regular
Interest or REMIC II Regular Interest outstanding as of any date of
determination. As of the Closing Date, the Uncertificated Balance of each REMIC
I Regular Interest and each REMIC II Regular Interest shall equal the amount set
forth in the Preliminary Statement hereto as its initial uncertificated balance.
On each Distribution Date, the Uncertificated Balance of each REMIC I Regular
Interest and each REMIC II Regular Interest shall be reduced by all
distributions of principal made on such REMIC I Regular Interest or such REMIC
II Regular Interest, as applicable, on such Distribution Date pursuant to
Section 4.01 and, if and to the extent necessary and appropriate, shall be
further reduced on such Distribution Date by Realized Losses as provided in
Section 4.04 and the Uncertificated Balances of REMIC I Regular Interest I-LT9
and REMIC II Regular Interest II-LT9 shall be increased by interest deferrals as
provided in Section 4.01(a)(1)(A)(i) and Section 4.01(a)(1)(B)(i), respectively.
The Uncertificated Balance of each REMIC I Regular Interest and each REMIC II
Regular Interest shall never be less than zero.
"Uncertificated Corresponding Component": With respect to:
REMIC II Regular Interest II-LT1, REMIC I Regular Interest I-LT1; REMIC II
Regular Interest II-LT2 and REMIC II Regular Interest II-LT2S, REMIC I Regular
Interest I-LT2; REMIC II Regular Interest II-LT3 and REMIC II Regular Interest
II-LT3S, REMIC I Regular Interest I-LT3; REMIC II Regular Interest II-LT4 and
REMIC II Regular Interest II-LT4S, REMIC I Regular Interest I-LT4; REMIC II
Regular Interest II-LT5 and REMIC II Regular Interest II-LT5S, REMIC I Regular
Interest I-LT5; REMIC II Regular Interest II-LT6 and REMIC II Regular Interest
II-LT6S, REMIC I Regular Interest I-LT6; REMIC II Regular Interest II- LT7 and
REMIC II Regular Interest II-LT7S, REMIC I Regular Interest I-LT7; REMIC II
Regular Interest II-LT8 and REMIC II Regular Interest II-LT8S, REMIC I Regular
Interest I-LT8; REMIC II Regular Interest II-LT9, REMIC I Regular Interest
I-LT9; and REMIC II Regular Interest II-LTP, REMIC I Regular Interest I-LTP.
"Uncertificated Interest": With respect to any REMIC I Regular
Interest for any Distribution Date, one month's interest at the REMIC I
Remittance Rate applicable to such REMIC I Regular Interest for such
Distribution Date, accrued on the Uncertificated Balance thereof immediately
prior to such Distribution Date. With respect to any REMIC II Regular Interest
for any Distribution Date, one month's interest at the REMIC II Remittance Rate
applicable to such REMIC II Regular Interest for such Distribution Date, accrued
on the Uncertificated Balance thereof immediately prior to such Distribution
Date. Uncertificated Interest in respect of any REMIC I Regular Interest or any
REMIC II
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Regular Interest shall accrue on the basis of a 360-day year consisting of
twelve 30-day months. Uncertificated Interest with respect to each Distribution
Date, as to any REMIC I Regular Interest or REMIC II Regular Interest, shall be
reduced by an amount equal to the sum of (a) the aggregate Prepayment Interest
Shortfall, if any, for such Distribution Date to the extent not covered by
payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief Act
Interest Shortfall, if any allocated, in each case, to such REMIC I Regular
Interest or REMIC II Regular Interest pursuant to Section 1.02. In addition,
Uncertificated Interest with respect to each Distribution Date, as to any REMIC
I Regular Interest or REMIC II Regular Interest, shall be reduced by Realized
Losses, if any, allocated to such REMIC I Regular Interest or REMIC II Regular
Interest pursuant to Section 1.02 and Section 4.04.
"Uncertificated Notional Amount": With respect to REMIC II
Regular Interest II-LT2S, REMIC II Regular Interest II-LT3S, REMIC II Regular
Interest II-LT4S, REMIC II Regular Interest II- LT5S, REMIC II Regular Interest
II-LT6S, REMIC II Regular Interest II-LT7S and REMIC II Regular Interest
II-LT8S, the Uncertificated Balance of REMIC I Regular Interest I-LT2, REMIC I
Regular Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest
I-LT5, REMIC I Regular Interest I- LT6, REMIC I Regular Interest I-LT7 and REMIC
I Regular Interest I-LT8, respectively.
"Uninsured Cause": Any cause of damage to a Mortgaged Property
such that the complete restoration of such property is not fully reimbursable by
the hazard insurance policies required to be maintained pursuant to Section
3.14.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof
(except, in the case of a partnership, to the extent provided in regulations) or
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. To the extent prescribed in regulations by the Secretary
of the Treasury, which have not yet been issued, a trust which was in existence
on August 20, 1996 (other than a trust treated as owned by the grantor under
subpart E of part I of subchapter J of chapter 1 of the Code), and which was
treated as a United States person on August 20, 1996 may elect to continue to be
treated as a United States person notwithstanding the previous sentence. The
term "United States" shall have the meaning set forth in Section 7701 of the
Code.
"Value": With respect to any Mortgaged Property relating to a
Mortgage Loan serviced by New Century, the lesser of (i) the lesser of (a) the
value thereof as determined by an appraisal made for the originator of the
Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser
who met the minimum requirements of Fannie Mae and Freddie Mac and (b) the value
thereof as determined by a review appraisal conducted by New Century (in its
capacity as an Originator) in accordance with New Century's underwriting
guidelines, and (ii) the purchase price paid for the related Mortgaged Property
by the Mortgagor with the proceeds of the Mortgage Loan; provided, however, (A)
in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property
is based solely upon the lesser of (1) the value determined by an appraisal made
for the originator of such Refinanced Mortgage Loan at the time of origination
of such Refinanced Mortgage Loan by an appraiser who met the minimum
requirements of Fannie Mae and Freddie Mac and (2) the value thereof as
determined by a review appraisal conducted by New Century (in its capacity as an
Originator) in accordance with New Century's underwriting guidelines, and (B) in
the case of a Mortgage Loan originated in connection with a "lease-option
purchase," such value of the Mortgaged Property is based on the lower of the
value determined by an appraisal made for the originator of such Mortgage Loan
at the time of origination or the sale price of such Mortgaged Property
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if the "lease option purchase price" was set less than 12 months prior to
origination, and is based on the value determined by an appraisal made for the
originator of such Mortgage Loan at the time of origination if the "lease option
purchase price" was set 12 months or more prior to origination. With respect to
any Mortgaged Property relating to a Mortgage Loan serviced by Option One, the
lesser of (i) the lesser of (a) the value thereof as determined by an appraisal
made for the originator of the Mortgage Loan at the time of origination of the
Mortgage Loan by an appraiser who met the minimum requirements of Fannie Mae and
Freddie Mac and (b) the value thereof as determined by a review appraisal
conducted by Option One (in its capacity as an Originator) in the event any such
review appraisal determines an appraised value more than 10% lower than the
value thereof, in the case of a Mortgage Loan with a Loan-to--Value Ratio less
than or equal to 80%, or more than 5% lower than the value thereof, in the case
of a Mortgage Loan with a Loan-to-Value Ratio greater than 80%, as determined by
the appraisal referred to in clause (i)(a) above, and (ii) the purchase price
paid for the related Mortgaged Property by the Mortgagor with the proceeds of
the Mortgage Loan; provided, however, (A) in the case of a Refinanced Mortgage
Loan, such value of the Mortgaged Property is based solely upon the lesser of
(1) the value determined by an appraisal made for the originator of such
Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage
Loan by an appraiser who met the minimum requirements of Fannie Mae and Freddie
Mac and (2) the value thereof as determined by a review appraisal conducted by
Option One (in its capacity as Originator) in the event any such review
appraisal determines an appraised value more than 10% lower than the value
thereof, in the case of a Mortgage Loan with a Loan-to--Value Ratio less than or
equal to 80%, or more than 5% lower than the value thereof, in the case of a
Mortgage Loan with a Loan-to-Value Ratio greater than 80%, as determined by the
appraisal referred to in clause (ii)(A)(1) above, and (B) in the case of a
Mortgage Loan originated in connection with a "lease-option purchase," such
value of the Mortgaged Property is based on the lower of the value determined by
an appraisal made for the originator of such Mortgage Loan at the time of
origination or the sale price of such Mortgaged Property if the "lease option
purchase price" was set less than 12 months prior to origination, and is based
on the value determined by an appraisal made for the originator of such Mortgage
Loan at the time of origination if the "lease option purchase price" was set 12
months or more prior to origination.
"Voting Rights": The portion of the voting rights of all of
the Certificates which is allocated to any Certificate. With respect to any date
of determination, 98% of all Voting Rights will be allocated among the holders
of the Class A Certificates and the Class CE Certificates in proportion to the
then outstanding Certificate Principal Balances of their respective
Certificates, 1% of all Voting Rights will be allocated to the holders of the
Class P Certificates and 1/3 of 1% of all Voting Rights will be allocated among
the holders of each Class of Residual Certificates. The Voting Rights allocated
to each Class of Certificate shall be allocated among Holders of each such Class
in accordance with their respective Percentage Interests as of the most recent
Record Date.
SECTION 1.02. Allocation of Certain Interest Shortfalls.
For purposes of calculating the amount of Accrued Certificate
Interest and the amount of the Interest Distribution Amounts for the Class A
Certificates and the Class CE Certificates for any Distribution Date, (1) the
aggregate amount of any Prepayment Interest Shortfalls (to the extent not
covered by payments by the related Servicer pursuant to Section 3.24) incurred
in respect of the Mortgage Loans for any Distribution Date shall be allocated
among the Class CE Certificates on a PRO RATA basis based on, and to the extent
of, one month's interest at the then applicable respective Pass-Through Rate on
the respective Notional Amount of each such Certificate, (2) the aggregate
amount of any Relief Act Interest Shortfalls incurred in respect of the Mortgage
Loans for any Distribution Date shall be allocated first, among the Class CE
Certificates on a PRO RATA basis based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Notional Amount of each such
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Certificate and, thereafter, among the Class A Certificates on a PRO RATA basis
based on, and to the extent of, one month's interest at the then applicable
respective Pass-Through Rate on the respective Certificate Principal Balance of
each such Certificate and (3) the aggregate amount of any Realized Losses
incurred for any Distribution Date shall be allocated among the Class CE
Certificates on a PRO RATA basis based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Notional Amount of each such Certificate.
For purposes of calculating the amount of Uncertificated
Interest for the REMIC I Regular Interests for any Distribution Date, (1) the
aggregate amount of any Prepayment Interest Shortfalls (to the extent not
covered by payments by the related Servicer pursuant to Section 3.24) incurred
in respect of the Mortgage Loans for any Distribution Date shall be allocated,
to Uncertificated Interest payable to REMIC I Regular Interest I-LT1 and REMIC I
Regular Interest I-LT9 up to an aggregate amount equal to the REMIC I Interest
Loss Allocation Amount, __% and __%, respectively and (2) the aggregate amount
of any Relief Act Interest Shortfalls incurred in respect of the Mortgage Loans
for any Distribution Date shall be allocated first, to Uncertificated Interest
payable to REMIC I Regular Interest I-LT1 and REMIC I Regular Interest I-LT9 up
to an aggregate amount equal to the REMIC I Interest Loss Allocation Amount,
___% and __%, respectively, and thereafter among REMIC I Regular Interest I-LT1,
REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6,
REMIC I Regular Interest I-LT7, REMIC I Regular Interest I-LT8 and REMIC I
Regular Interest I-LT9 PRO RATA based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Uncertificated Balance of each such REMIC I Regular Interest.
All Prepayment Interest Shortfalls and Relief Act Interest
Shortfalls on the REMIC II Regular Interests shall be allocated by the Trust
Administrator on each Distribution Date among the REMIC II Regular Interests in
the proportion that Prepayment Interest Shortfalls and Relief Act Interest
Shortfalls are allocated to the related Uncertificated Corresponding Component.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of the Mortgage Loans.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse, for the benefit of the Certificateholders and the
Certificate Insurer, all the right, title and interest of the Depositor,
including any security interest therein for the benefit of the Depositor, in and
to the Mortgage Loans identified on the Mortgage Loan Schedule, the rights of
the Depositor under the Mortgage Loan Purchase Agreements, and all other assets
included or to be included in REMIC I. Such assignment includes all interest and
principal received by the Depositor or either Servicer on or with respect to the
Mortgage Loans (other than payments of principal and interest due on such
Mortgage Loans on or before the Cut-off Date).
In connection with such transfer and assignment, the Depositor
does hereby deliver to, and deposit with, the Trust Administrator, as custodian
for the Trustee (in which capacity the Trust Administrator will, unless
otherwise specified, be acting under this Article II), the following documents
or instruments with respect to each Mortgage Loan so transferred and assigned (a
"Mortgage File"):
(i) (a) with respect to each Mortgage Loan on Part A of
the Mortgage Loan Schedule, the original Mortgage Note,
endorsed in the following form: "Pay to the order of
___________________, as Trustee under the applicable
agreement, without recourse," and (b) with respect to each
Mortgage Loan on Part B of the Mortgage Loan Schedule, the
original Mortgage Note, endorsed in the following form: "Pay
to the order of _________________ as trustee," in each case,
with all prior and intervening endorsements showing a complete
chain of endorsement from the originator to the Person so
endorsing to the Trustee or _______________________, as
applicable;
(ii) the original Mortgage with evidence of recording
thereon, and the original recorded power of attorney, if the
Mortgage was executed pursuant to a power of attorney,
with evidence of recording thereon;
(iii) an original Assignment of the Mortgage executed in
the following form: "____________________________, as Trustee
under the applicable agreement";
(iv) the original recorded Assignment or Assignments of
the Mortgage showing a complete chain of assignment from the
originator to the Person assigning the Mortgage to the Trustee
as contemplated by the immediately preceding clause (iii);
(v) the original or copies of each assumption,
modification, written assurance or substitution agreement, if
any; and
(vi) the original lender's title insurance policy,
together with all endorsements or riders that were issued with
or subsequent to the issuance of such policy, insuring the
priority of the Mortgage as a first lien or second lien on the
Mortgaged Property represented therein as a fee interest
vested in the Mortgagor, or in the event such original
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title policy is unavailable, a written commitment or uniform
binder or preliminary report of title issued by the title
insurance or escrow company.
Within 30 Business Days following the Closing Date,
_____________ will prepare, execute and deliver to the Trust Administrator an
endorsement for each of the Mortgage Loans on Part B of the Mortgage Loan
Schedule endorsing each related Mortgage Note in the following form: "Pay to the
order of _______________________, as Trustee under the applicable agreement,
without recourse" and the endorsement provided for in Section 2.01(i)(b) will be
voided by the Trust Administrator.
The Trust Administrator, at the expense of the related
Servicer, shall promptly (within sixty Business Days following the later of the
Closing Date and the date of receipt by the Trust Administrator of the recording
information for a Mortgage, but in no event later than ninety days following the
Closing Date) submit or cause to be submitted for recording, at no expense to
the Trust Fund, the Trustee, the Trust Administrator, the Certificate Insurer or
the Depositor, in the appropriate public office for real property records, each
Assignment referred to in Sections 2.01(iii) and (iv) above. In the event that
any such Assignment is lost or returned unrecorded because of a defect therein,
the related Servicer shall promptly prepare or cause to be prepared a substitute
Assignment or cure or cause to be cured such defect, as the case may be, and
thereafter cause each such Assignment to be duly recorded.
With respect to a maximum of approximately ___% of the
Original Mortgage Loans, by outstanding principal balance of the Original
Mortgage Loans as of the Cut-off Date, if any original Mortgage Note referred to
in Section 2.01(i) above cannot be located, the obligations of the Depositor to
deliver such documents shall be deemed to be satisfied upon delivery to the
Trust Administrator of a photocopy of such Mortgage Note, if available, with a
lost note affidavit substantially in the form of Exhibit I attached hereto. If
any of the original Mortgage Notes for which a lost note affidavit was delivered
to the Trust Administrator is subsequently located, such original Mortgage Note
shall be delivered to the Trust Administrator within three Business Days. If any
of the documents referred to in Sections 2.01(ii), (iii) or (iv) above has as of
the Closing Date been submitted for recording but either (x) has not been
returned from the applicable public recording office or (y) has been lost or
such public recording office has retained the original of such document, the
obligations of the Depositor to deliver such documents shall be deemed to be
satisfied upon (1) delivery to the Trust Administrator of a copy of each such
document certified by the related Originator in the case of (x) above or the
applicable public recording office in the case of (y) above to be a true and
complete copy of the original that was submitted for recording and (2) if such
copy is certified by the related Originator, delivery to the Trust Administrator
promptly upon receipt thereof of either the original or a copy of such document
certified by the applicable public recording office to be a true and complete
copy of the original. Notice shall be provided to the Trustee, the Trust
Administrator, the Certificate Insurer and the Rating Agencies by the related
Originator if delivery pursuant to clause (2) above will be made more than 180
days after the Closing Date. If the original lender's title insurance policy was
not delivered pursuant to Section 2.01(vi) above, the Depositor shall deliver or
cause to be delivered to the Trust Administrator, promptly after receipt
thereof, the original lender's title insurance policy. The Depositor shall
deliver or cause to be delivered to the Trust Administrator promptly upon
receipt thereof any other original documents constituting a part of a Mortgage
File received with respect to any Mortgage Loan, including, but not limited to,
any original documents evidencing an assumption or modification of any Mortgage
Loan.
All original documents relating to the Mortgage Loans that are
not delivered to the Trust Administrator are and shall be held by or on behalf
of the related Originator, the Seller, the Depositor or the related Servicer, as
the case may be, in trust for the benefit of the Trustee on behalf of the
Certificateholders and the Certificate Insurer. In the event that any such
original document is required
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pursuant to the terms of this Section to be a part of a Mortgage File, such
document shall be delivered promptly to the Trust Administrator. Any such
original document delivered to or held by the Depositor that is not required
pursuant to the terms of this Section to be a part of a Mortgage File, shall be
delivered promptly to the related Servicer.
The Depositor herewith delivers to the Trustee and the Trust
Administrator an executed copy of the Mortgage Loan Purchase Agreements. In
addition to the foregoing, the Depositor shall cause the Certificate Insurer to
deliver the Policy to the Trust Administrator for the benefit of the
Certificateholders.
SECTION 2.02. Acceptance of REMIC I by Trustee.
The Trust Administrator, on behalf of the Trustee,
acknowledges receipt of the Policy and, subject to the provisions of Section
2.01 and subject to any exceptions noted on the exception report described in
the next paragraph below, the documents referred to in Section 2.01 (other than
such documents described in Section 2.01(v)) above and all other assets included
in the definition of "REMIC I" under clauses (i), (iii), (iv) and (v) (to the
extent of amounts deposited into the Distribution Account) and declares that it
holds and will hold such documents and the other documents delivered to it
constituting a Mortgage File, and that it holds or will hold all such assets and
such other assets included in the definition of "REMIC I" in trust for the
exclusive use and benefit of all present and future Certificateholders and the
Certificate Insurer.
The Trust Administrator agrees, for the benefit of the
Certificateholders and the Certificate Insurer, to review each Mortgage File on
or before the Closing Date and to certify in substantially the form attached
hereto as Exhibit C-1 that, (i) as to each Mortgage Loan listed on Part A of the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (a) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required to be delivered to it pursuant to this Agreement are in its possession,
(b) such documents have been reviewed by it and appear regular on their face and
relate to such Mortgage Loan, (c) based on its examination and only as to the
foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (i) through (iii), (vi), (x), (xi), (xii), (xv) and (xxii)
of the definition of "Mortgage Loan Schedule" accurately reflects information
set forth in the Mortgage File and (ii) as to each Mortgage Loan listed on Part
B of the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or
any Mortgage Loan specifically identified in the exception report annexed
thereto as not being covered by such certification), (a) the documents
constituting part of such Mortgage File described in Section 2.01(i) and (iii)
are in its possession. It is herein acknowledged that, in conducting such
review, the Trust Administrator was under no duty or obligation (i) to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine whether they are genuine, enforceable, or appropriate for the
represented purpose or whether they have actually been recorded or that they are
other than what they purport to be on their face, or (ii) to determine whether
any Mortgage File should include any of the documents specified in clause (v) of
Section 2.01.
The Trust Administrator agrees, for the benefit of the
Certificateholders and the Certificate Insurer, to review each Mortgage File
within 60 days after the Closing Date and to certify in substantially the form
attached hereto as Exhibit C-2 that, as to each Mortgage Loan listed on Part B
of the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (a) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required
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to be delivered to it pursuant to this Agreement are in its possession and
additionally the endorsement provided in Section 2.01(i)(b) has been voided and
replaced with an endorsement from Option One, endorsing each related Mortgage
Note in the following form: "Pay to the order of Firstar Bank Milwaukee, N.A.,
as Trustee under the applicable agreement, without recourse", (b) such documents
have been reviewed by it and appear regular on their face and relate to such
Mortgage Loan, (c) based on its examination and only as to the foregoing, the
information set forth in the Mortgage Loan Schedule that corresponds to items
(i) through (iii), (vi), (x), (xi), (xii), (xv) and (xxii) of the definition of
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. It is herein acknowledged that, in conducting such review, the
Trust Administrator was under no duty or obligation (i) to inspect, review or
examine any such documents, instruments, certificates or other papers to
determine whether they are genuine, enforceable, or appropriate for the
represented purpose or whether they have actually been recorded or that they are
other than what they purport to be on their face, or (ii) to determine whether
any Mortgage File should include any of the documents specified in clause (v) of
Section 2.01.
Prior to the first anniversary date of this Agreement the
Trust Administrator shall deliver to the Depositor, each Servicer, the Trustee
and the Certificate Insurer a final certification in the form annexed hereto as
Exhibit C-3 evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon, and the related Servicer shall forward a
copy thereof to any Sub-Servicer.
If in the process of reviewing the Mortgage Files and making
or preparing, as the case may be, the certifications referred to above, the
Trust Administrator finds any document or documents constituting a part of a
Mortgage File to be missing or defective in any material respect, at the
conclusion of its review the Trust Administrator shall so notify the Depositor,
the applicable Servicer, the Trustee and the Certificate Insurer. In addition,
upon the discovery by the Depositor, either Servicer, the Trust Administrator or
the Trustee of a breach of any of the representations and warranties made by
either Originator or the Seller in the Mortgage Loan Purchase Agreements in
respect of any Mortgage Loan which materially adversely affects such Mortgage
Loan or the interests of the related Certificateholders in such Mortgage Loan,
the party discovering such breach shall give prompt written notice to the other
parties and the Certificate Insurer.
The Trust Administrator shall, at the written request and
expense of any Certificateholder, provide a written report to such
Certificateholder of all Mortgage Files released to the related Servicer for
servicing purposes.
SECTION 2.03. Repurchase or Substitution of Mortgage Loans by
the Originators, the Seller or the Depositor.
(a) Upon discovery or receipt of notice of any materially
defective document in, or that a document is missing from, a Mortgage File or of
the breach by either Originator or the Seller of any representation, warranty or
covenant under the Mortgage Loan Purchase Agreements in respect of any Mortgage
Loan that materially adversely affects the value of such Mortgage Loan or the
interest therein of the Certificateholders, the Trust Administrator shall
promptly notify the related Originator, the Seller, the related Servicer, the
Master Servicer, the Trustee and the Certificate Insurer of such defect, missing
document or breach and request that such Originator or the Seller, as the case
may be, deliver such missing document or cure such defect or breach within 60
days from the date such Originator or the Seller, as the case may be, was
notified of such missing document, defect or breach, and if the related
Originator or the Seller, as the case may be, does not deliver such missing
document or cure such defect or breach in all material respects during such
period, the Trustee, in accordance with Section 3.02(b), shall enforce the
obligations of such Originator or the Seller, as the case may be, under the
related Mortgage Loan Purchase
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Agreement to repurchase such Mortgage Loan from REMIC I at the Purchase Price
within 90 days after the date on which the related Originator or the Seller, as
the case may be, was notified (subject to Section 2.03(e)) of such missing
document, defect or breach, if and to the extent that such Originator or the
Seller, as the case may be, is obligated to do so under the related Mortgage
Loan Purchase Agreement. The Purchase Price for the repurchased Mortgage Loan
shall be deposited in the Collection Account and the Trust Administrator, upon
receipt of written certification from the related Servicer of such deposit,
shall release to the related Originator or the Seller, as the case may be, the
related Mortgage File and the Trustee shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as such Originator or
the Seller, as the case may be, shall furnish to it and as shall be necessary to
vest in such Originator or the Seller, as the case may be, any Mortgage Loan
released pursuant hereto and neither the Trustee nor the Trust Administrator
shall have any further responsibility with regard to such Mortgage File. In lieu
of repurchasing any such Mortgage Loan as provided above, if so provided in the
related Mortgage Loan Purchase Agreement, the related Originator or the Seller,
as the case may be, may cause such Mortgage Loan to be removed from REMIC I (in
which case it shall become a Deleted Mortgage Loan) and substitute one or more
Qualified Substitute Mortgage Loans in the manner and subject to the limitations
set forth in Section 2.03(d). It is understood and agreed that the obligation of
the related Originator or the Seller, as the case may be, to cure or to
repurchase (or to substitute for) any Mortgage Loan as to which a document is
missing, a material defect in a constituent document exists or as to which such
a breach has occurred and is continuing shall constitute the sole remedy
respecting such omission, defect or breach available to the Trustee, the
Certificateholders and the Certificate Insurer.
(b) Subject to Section 2.03(e), within 90 days of the earlier
of discovery by the Depositor or receipt of notice by the Depositor of the
breach of any representation or warranty of the Depositor set forth in Section
2.04 with respect to any Mortgage Loan, which materially adversely affects the
value of such Mortgage Loan or the interest therein of the Certificateholders,
the Depositor shall (i) cure such breach in all material respects, (ii)
repurchase the Mortgage Loan from REMIC I at the Purchase Price or (iii) remove
such Mortgage Loan from REMIC I (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in
the manner and subject to the limitations set forth in Section 2.03(d). If any
such breach is a breach of any of the representations and warranties included in
Section 2.04(a)(iv), and the Depositor is unable to cure such breach, the
Depositor shall repurchase or substitute the smallest number of Mortgage Loans
as shall be required to make such representation or warranty true and correct.
The Purchase Price for any repurchased Mortgage Loan shall be delivered to the
related Servicer for deposit in the Collection Account, and the Trust
Administrator, upon receipt of written certification from the related Servicer
of such deposit, shall at the Depositor's direction release to the Depositor the
related Mortgage File and the Trustee shall execute and deliver such instruments
of transfer or assignment furnished by the Depositor, in each case without
recourse, as the Depositor shall furnish to it and as shall be necessary to vest
in the Depositor any Mortgage Loan released pursuant hereto.
(c) Within 90 days of the earlier of discovery by the either
Servicer or receipt of notice by either Servicer of the breach of any
representation, warranty or covenant of such Servicer set forth in Section 2.05
which materially and adversely affects the interests of the Certificateholders
in any Mortgage Loan or Prepayment Charge, such Servicer shall cure such breach
in all material respects.
(d) Any substitution of Qualified Substitute Mortgage Loans
for Deleted Mortgage Loans made pursuant to Section 2.03(a), in the case of
either Originator or the Seller, or Section 2.03(b), in the case of the
Depositor, must be effected prior to the date which is two years after the
Startup Day for REMIC I.
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As to any Deleted Mortgage Loan for which either Originator or
the Seller or the Depositor substitutes a Qualified Substitute Mortgage Loan or
Loans, such substitution shall be effected by such Originator, the Seller or the
Depositor, as the case may be, delivering to the Trust Administrator, on behalf
of the Trustee, for such Qualified Substitute Mortgage Loan or Loans, the
Mortgage Note, the Mortgage, the Assignment to the Trustee, and such other
documents and agreements, with all necessary endorsements thereon, as are
required by Section 2.01, together with an Officers' Certificate providing that
each such Qualified Substitute Mortgage Loan satisfies the definition thereof
and specifying the Substitution Shortfall Amount (as described below), if any,
in connection with such substitution. The Trust Administrator shall acknowledge
receipt for such Qualified Substitute Mortgage Loan or Loans and, within ten
Business Days thereafter, review such documents as specified in Section 2.02 and
deliver to the Depositor, the related Servicer, the Trustee and the Certificate
Insurer, with respect to such Qualified Substitute Mortgage Loan or Loans, a
certification substantially in the form attached hereto as Exhibit C-1, with any
applicable exceptions noted thereon. Within one year of the date of
substitution, the Trust Administrator shall deliver to the Depositor, the
related Servicer, the Trustee and the Certificate Insurer a certification
substantially in the form of Exhibit C-2 hereto with respect to such Qualified
Substitute Mortgage Loan or Loans, with any applicable exceptions noted thereon.
Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the
month of substitution are not part of REMIC I and will be retained by the
Depositor, the related Originator or the Seller, as the case may be. For the
month of substitution, distributions to Certificateholders will reflect the
Monthly Payment due on such Deleted Mortgage Loan on or before the Due Date in
the month of substitution, and the Depositor, the related Originator or the
Seller, as the case may be, shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Depositor
shall give or cause to be given written notice to the Certificateholders that
such substitution has taken place, shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Qualified Substitute Mortgage Loan or
Loans and shall deliver a copy of such amended Mortgage Loan Schedule to the
Trustee and the Trust Administrator. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall constitute part of the Mortgage Pool and
shall be subject in all respects to the terms of this Agreement and, in the case
of a substitution effected by either Originator or the Seller, the related
Mortgage Loan Purchase Agreement, including, in the case of a substitution
effected by either Originator or the Seller, all applicable representations and
warranties thereof included in such Mortgage Loan Purchase Agreement, and in the
case of a substitution effected by the Depositor, all applicable representations
and warranties thereof set forth in Section 2.04, in each case as of the date of
substitution.
For any month in which the Depositor, either Originator or the
Seller substitutes one or more Qualified Substitute Mortgage Loans for one or
more Deleted Mortgage Loans, the related Servicer will determine the amount (the
"Substitution Shortfall Amount"), if any, by which the aggregate Purchase Price
of all such Deleted Mortgage Loans exceeds the aggregate of, as to each such
Qualified Substitute Mortgage Loan, the Scheduled Principal Balance thereof as
of the date of substitution, together with one month's interest on such
Scheduled Principal Balance at the applicable Net Mortgage Rate, plus all
outstanding P&I Advances and Servicing Advances (including Nonrecoverable P&I
Advances and Nonrecoverable Servicing Advances) related thereto. On the date of
such substitution, the Depositor, the related Originator or the Seller, as the
case may be, will deliver or cause to be delivered to the related Servicer for
deposit in the Collection Account an amount equal to the Substitution Shortfall
Amount, if any, and the Trust Administrator, upon receipt of the related
Qualified Substitute Mortgage Loan or Loans and certification by such Servicer
of such deposit, shall release to the Depositor, the related Originator or the
Seller, as the case may be, the related Mortgage File or Files and the Trustee
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, as the Depositor, the related Originator or the Seller,
as the case may be, shall deliver to it and as shall be necessary to vest
therein any Deleted Mortgage Loan released pursuant hereto.
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In addition, the Depositor, the related Originator or the
Seller, as the case may be, shall obtain at its own expense and deliver to the
Trust Administrator, the Trustee and the Certificate Insurer an Opinion of
Counsel to the effect that such substitution will not cause (a) any federal tax
to be imposed on any of REMIC I, REMIC II or REMIC III, including without
limitation, any federal tax imposed on "prohibited transactions" under Section
860F(a)(1) of the Code or on "contributions after the startup date" under
Section 860G(d)(1) of the Code, or (b) any of REMIC I, REMIC II or REMIC III to
fail to qualify as a REMIC at any time that any Certificate is outstanding.
(e) Upon discovery by the Depositor, either Originator, the
Seller, either Servicer, the Trustee, the Trust Administrator or the Certificate
Insurer that any Mortgage Loan does not constitute a "qualified mortgage" within
the meaning of Section 860G(a)(3) of the Code, the party discovering such fact
shall within two Business Days give written notice thereof to the Trustee, the
Trust Administrator, the Master Servicer, the related Servicer and the
Certificate Insurer. In connection therewith, the related Originator, the Seller
or the Depositor shall repurchase or, subject to the limitations set forth in
Section 2.03(d), substitute one or more Qualified Substitute Mortgage Loans for
the affected Mortgage Loan within 90 days of the earlier of discovery or receipt
of such notice with respect to such affected Mortgage Loan. Such repurchase or
substitution shall be made by (i) the related Originator or the Seller, as the
case may be, if the affected Mortgage Loan's status as a non-qualified mortgage
is or results from a breach of any representation, warranty or covenant made by
such Originator or the Seller under the related Mortgage Loan Purchase
Agreement, or (ii) the Depositor, if the affected Mortgage Loan's status as a
non-qualified mortgage is a breach of any representation or warranty of the
Depositor set forth in Section 2.04, or if its status as a non-qualified
mortgage is a breach of no representation or warranty. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.03(a),
if made by either Originator or the Seller, or Section 2.03(b), if made by the
Depositor. The Trustee and the Trust Administrator shall reconvey to the
Depositor, the related Originator or the Seller, as the case may be, the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty.
SECTION 2.04. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the Trust
Administrator and the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date or
as of such other date specifically provided herein:
(i) The information set forth in the Mortgage Loan
Schedule for the Original Mortgage Loans is complete, true and
correct in all material respects at the date or dates
respecting which such information is furnished;
(ii) Except with respect to approximately ____% of the
Original Mortgage Loans which were 30 days or more but less
than 60 days delinquent in their Monthly Payment as of
____________ and with respect to approximately ____% of the
Original Mortgage Loans which were ___ days or more but less
than ___ days delinquent in their Monthly Payments as of
_____________, in each case, by outstanding principal balance
of the Original Mortgage Loans as of the Cut-off Date, as of
____________, the Monthly Payment due under each Original
Mortgage Loan is not ___ or more days delinquent in payment
and has not been ___ or more days delinquent in payment more
than once in the twelve month period prior to ______________
(assuming that a "rolling" 30 day delinquency is considered to
be delinquent only once);
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(iii) Each Original Mortgage Loan had an original term to
maturity of not greater than 30 years; except with respect to
approximately _____% of the Original Mortgage Loans, by
outstanding principal balance of the Original Mortgage Loans
as of the Cut-off Date which are Balloon Loans, each Original
Mortgage Loan is a fixed-rate mortgage loan with payments
generally due on the first day of each month and each such
Mortgage Loan is fully amortizing;;
(iv) (A) No more than approximately _____%,
approximately _____%, approximately ____%, approximately
_____%, approximately ____%, approximately ____%,
approximately ____% and approximately ____% of the Original
Mortgage Loans, by outstanding principal balance of the
Original Mortgage Loans as of the Cut-off Date, will be
secured by Mortgaged Properties located in __________,
_______, _____, ----, ________, _______, ____________ and
__________, respectively, and no more than ____% of the
Original Mortgage Loans, by outstanding principal balance of
the Original Mortgage Loans as of the Cut-off Date, will be
secured by Mortgaged Properties located in any other state;
(B) as of the Cut-off Date, no more than approximately ____%
of the Original Mortgage Loans, by outstanding principal
balance of the Original Mortgage Loans as of the Cut-off Date,
are secured by Mortgaged Properties located in any one
__________ zip code area, and no more than approximately
_____% of the Original Mortgage Loans, by outstanding
principal balance of the Original Mortgage Loans as of the
Cut-off Date, are secured by units in two- to four-family
dwellings, condominiums, town houses, planned unit
developments or manufactured housing and; (C) at least
approximately _____% of the Original Mortgage Loans, by
outstanding principal balance of the Original Mortgage Loans
as of the Cut-off Date, are secured by real property with a
single family residence erected thereon;
(v) If the Mortgaged Property securing an Original
Mortgage Loan is identified in the Federal Register by the
Federal Emergency Management Agency ("FEMA") as having special
flood hazards, as of the Closing Date, such Mortgaged Property
is covered by a flood insurance policy that met the
requirements of FEMA at the time such policy was issued;
(vi) With respect to each Original Mortgage Loan, the
Loan-to-Value Ratio was less than or equal to ______% at the
origination of such Original Mortgage Loan; and
(vii) With respect to at least approximately _____% of
the Original Mortgage Loans by outstanding principal balance
as of the Cut-off Date, at the time that such Mortgage Loan
was made, the Mortgagor represented that the Mortgagor would
occupy the Mortgaged Property as the Mortgagor's primary
residence. With respect to approximately _____% of the
Original Mortgage Loans by outstanding principal balance as of
the Cut-off Date, at the time that such Mortgage Loan was
made, the Mortgagor represented that the Mortgagor would
occupy the Mortgaged Property as the Mortgagor's secondary
residence or that the Mortgaged Property would be an investor
property.
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trust Administrator and shall inure to the benefit of the
Certificateholders and the Certificate Insurer notwithstanding any restrictive
or qualified endorsement or assignment. Upon discovery by any of the Depositor,
either Servicer, the Trustee or the Trust Administrator of a breach of any of
the foregoing representations and warranties which materially
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and adversely affects the value of any Mortgage Loan, Prepayment Charge or the
interests therein of the Certificateholders and the Certificate Insurer, the
party discovering such breach shall give prompt written notice to the other
parties, and in no event later than two Business Days from the date of such
discovery. It is understood and agreed that the obligations of the Depositor set
forth in Section 2.03(b) to cure, substitute for or repurchase a Mortgage Loan
constitute the sole remedies available to the Certificateholders or to the Trust
Administrator or the Trustee on their behalf respecting a breach of the
representations and warranties contained in this Section 2.04.
SECTION 2.05. Representations, Warranties and Covenants of the
Servicers.
Each Servicer hereby represents, warrants and covenants to the
Trust Administrator and the Trustee, for the benefit of each of the Trustee, the
Trust Administrator, the Certificateholders, the Certificate Insurer, the Master
Servicer and to the Depositor that as of the Closing Date or as of such date
specifically provided herein:
(i) Such Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the
State of __________ and is duly authorized and qualified to
transact any and all business contemplated by this Agreement
to be conducted by such Servicer in any state in which a
Mortgaged Property is located or is otherwise not required
under applicable law to effect such qualification and, in any
event, is in compliance with the doing business laws of any
such State, to the extent necessary to ensure its ability to
enforce each Mortgage Loan and to service the Mortgage Loans
in accordance with the terms of this Agreement;
(ii) Such Servicer has the full power and authority to
conduct its business as presently conducted by it and to
execute, deliver and perform, and to enter into and
consummate, all transactions contemplated by this Agreement.
Such Servicer has duly authorized the execution, delivery and
performance of this Agreement, has duly executed and delivered
this Agreement, and this Agreement, assuming due
authorization, execution and delivery by the Depositor, the
Trust Administrator, the Trustee and the other Servicer,
constitutes a legal, valid and binding obligation of such
Servicer, enforceable against it in accordance with its terms
except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally and
by general principles of equity;
(iii) The execution and delivery of this Agreement by
such Servicer, the servicing of the Mortgage Loans by such
Servicer hereunder, the consummation by such Servicer of any
other of the transactions herein contemplated, and the
fulfillment of or compliance with the terms hereof are in the
ordinary course of business of such Servicer and will not (A)
result in a breach of any term or provision of the charter or
by-laws of such Servicer or (B) conflict with, result in a
breach, violation or acceleration of, or result in a default
under, the terms of any other material agreement or instrument
to which such Servicer is a party or by which it may be bound,
or any statute, order or regulation applicable to such
Servicer of any court, regulatory body, administrative agency
or governmental body having jurisdiction over such Servicer;
and such Servicer is not a party to, bound by, or in breach or
violation of any indenture or other agreement or instrument,
or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which
materially and adversely affects or, to such Servicer's
knowledge, would in the future
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materially and adversely affect, (x) the ability of such
Servicer to perform its obligations under this Agreement or
(y) the business, operations, financial condition, properties
or assets of such Servicer taken as a whole;
(iv) Such Servicer is a HUD approved mortgagee pursuant
to Section 203 of the National Housing Act. No event has
occurred, including but not limited to a change in insurance
coverage, that would make such Servicer unable to comply with
HUD eligibility requirements or that would require
notification to HUD;
(v) Such Servicer does not believe, nor does it have
any reason or cause to believe, that it cannot perform each
and every covenant made by it and contained in this
Agreement;
(vi) With respect to each Mortgage Loan serviced by it,
such Servicer, or Sub- Servicer, if any, is in possession of a
complete Mortgage File, except for such documents
as have been delivered to the Trust Administrator;
(vii) No litigation is pending against such Servicer that
would materially and adversely affect the execution, deliver
or enforceability of this Agreement or the ability of such
Servicer to service the Mortgage Loans or to perform any of
its other obligations
hereunder in accordance with the terms hereof;
(viii) There are no actions or proceedings against, or
investigations known to it of, such Servicer before any court,
administrative or other tribunal (A) that might prohibit its
entering into this Agreement, (B) seeking to prevent the
consummation of the transactions contemplated by this
Agreement or (C) that might prohibit or materially and
adversely affect the performance by such Servicer of its
obligations under, or validity or enforceability of, this
Agreement;
(ix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
execution, delivery and performance by such Servicer of, or
compliance by such Servicer with, this Agreement or the
consummation by it of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations
or orders, if any, that have been obtained prior to the
Closing Date;
(x) With respect to ___________, the information set
forth in the applicable part of the Prepayment Charge Schedule
(including the applicable part of the prepayment charge
summary attached thereto) is complete, true and correct in all
material respects on the date or dates when such information
is furnished and each Prepayment Charge is permissible and
enforceable in accordance with its terms (except to the extent
that the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally or the collectability
thereof may be limited due to acceleration in connection with
a foreclosure) under applicable state law and with respect to
__________ the information set forth in the applicable part of
the Prepayment Charge Schedule (including the applicable part
of the prepayment charge summary attached thereto) is
complete, true and correct in all material respects, and each
Prepayment Charge is permissible, enforceable and collectible
under applicable state law subject to bankruptcy and equitable
enforcement limitations;
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(xi) The related Servicer will not waive any Prepayment
Charge unless it is waived in accordance with the standard set
forth in Section 3.01; and
(xii) The related Servicer's computer and other systems
used in servicing mortgage loans will be modified and
maintained to operate in a manner such that at all times,
including on and after January 1, 2000, (i) such Servicer can
service the Mortgage Loans in accordance with the terms of
this Agreement if necessary and (ii) such Servicer can operate
its business in the same manner as it is operating on the date
hereof; provided that such Servicer's ability to meet the
requirements of this representation may be limited in
circumstances where it relies (after reasonable due diligence
in inquiring into and obtaining reasonable compliance
representations) on third party systems which are incompatible
with those of such Servicer on or after January 1, 2000.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.05 shall survive delivery
of the Mortgage Files to the Trust Administrator and shall inure to the benefit
of the Trust Administrator, the Trustee, the Depositor, the Certificateholders
and the Certificate Insurer. Upon discovery by any of the Depositor, either
Servicer, the Trust Administrator or the Trustee of a breach of any of the
foregoing representations, warranties and covenants which materially and
adversely affects the value of any Mortgage Loan, Prepayment Charge or the
interests therein of the Certificateholders and the Certificate Insurer, the
party discovering such breach shall give prompt written notice (but in no event
later than two Business Days following such discovery) to the Trust
Administrator, the Trustee and the Certificate Insurer. Subject to Section 7.01,
unless such breach shall not be susceptible of cure within 90 days, the
obligation of each Servicer set forth in Section 2.03(c) to cure breaches shall
constitute the sole remedy against the related Servicer available to the
Certificateholders, the Depositor or the Trust Administrator and the Trustee on
behalf of the Certificateholders respecting a breach of the representations,
warranties and covenants contained in this Section 2.05. Notwithstanding the
foregoing, within 90 days of the earlier of discovery by the related Servicer or
receipt of notice by such Servicer of the breach of the representation or
covenant of such Servicer set forth in Sections 2.05(x) or 2.05(xi) above which
materially and adversely affects the interests of the Holders of the Class P
Certificates in any Prepayment Charge, such Servicer shall remedy such breach as
follows: (a) if the representation made by the related Servicer in Section
2.05(x) above is breached and a Principal Prepayment has occurred in the
applicable Prepayment Period, such Servicer must pay the amount of the scheduled
Prepayment Charge, for the benefit of the holder of the Class P Certificate, by
depositing such amount into the Collection Account, net of any amount previously
collected by such Servicer and paid by such Servicer, for the benefit of the
Holders of the Class P Certificates, in respect of such Prepayment Charge; and
(b) if any of the covenants made by the related Servicer in Section 2.05(xi)
above is breached, such Servicer must pay the amount of such waived Prepayment
Charge, for the benefit of the holders of the Class P Certificates, by
depositing such amount into the Collection Account. The foregoing shall not,
however, limit any remedies available to the Certificateholders, the Depositor,
the Trust Administrator or the Trustee on behalf of the Certificateholders,
pursuant to the related Mortgage Loan Purchase Agreement signed by the related
Servicer in its capacity as Originator, respecting a breach of the
representations, warranties and covenants of such Servicer in its capacity as
Originator contained in such Mortgage Loan Purchase Agreement.
SECTION 2.06. Issuance of the Class R-I Certificates.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery to it (or the Trust Administrator on its behalf) of the
Mortgage Files, subject to the provisions of Section 2.01 and Section 2.02,
together with the assignment to it of all other assets included in REMIC I, the
receipt of which is hereby acknowledged. Concurrently with such assignment and
delivery and in exchange
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therefor, the Trust Administrator, pursuant to the written request of the
Depositor executed by an officer of the Depositor, has executed, authenticated
and delivered to or upon the order of the Depositor, the Class R-I Certificates
in authorized denominations. The interests evidenced by the Class R-I
Certificates, together with the REMIC I Regular Interests, constitute the entire
beneficial ownership interest in REMIC I. The rights of the Class R-I
Certificateholders and REMIC II (as holder of the REMIC I Regular Interests) to
receive distributions from the proceeds of REMIC I in respect of the Class R-I
Certificates and the REMIC I Regular Interests, respectively, and all ownership
interests evidenced or constituted by the Class R-I Certificates and the REMIC I
Regular Interests, shall be as set forth in this Agreement.
SECTION 2.07. Conveyance of the REMIC I Regular Interests;
Acceptance of REMIC II by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee, without recourse all the right, title and interest of the Depositor in
and to the REMIC I Regular Interests for the benefit of the Class R-II and REMIC
III Certificateholders. The Trustee acknowledges receipt of the REMIC I Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future Class R-II
Certificateholders and REMIC III Certificateholders. The rights of the Class
R-II Certificateholders and REMIC III (as holder of the REMIC II Regular
Interests) to receive distributions from the proceeds of REMIC II in respect of
the Class R-II Certificates and REMIC II Regular Interests, respectively, and
all ownership interests evidenced or constituted by the Class R-II Certificates
and the REMIC II Regular Interests, shall be as set forth in this Agreement.
SECTION 2.08. Issuance of Class R-II Certificates.
The Trustee acknowledges the assignment to it of the REMIC I
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed by an officer of the Depositor,
the Trust Administrator has executed, authenticated and delivered to or upon the
order of the Depositor, the Class R-II Certificates in authorized denominations.
The interests evidenced by the Class R-II Certificates, together with the REMIC
II Regular Interests, constitute the entire beneficial ownership interest in
REMIC II.
SECTION 2.09. Conveyance of REMIC II Regular Interests;
Acceptance of REMIC III by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee, without recourse all the right, title and interest of the Depositor in
and to the REMIC II Regular Interests for the benefit of the REMIC III
Certificateholders and the Certificate Insurer. The Trustee acknowledges receipt
of the REMIC II Regular Interests and declares that it holds and will hold the
same in trust for the exclusive use and benefit of all present and future REMIC
III Certificateholders and the Certificate Insurer. The rights of the REMIC III
Certificateholders to receive distributions from the proceeds of REMIC III in
respect of the REMIC III Certificates, and all ownership interests evidenced or
constituted by the REMIC III Certificates, shall be as set forth in this
Agreement.
SECTION 2.10. Issuance of REMIC III Certificates.
The Trustee acknowledges the assignment to it of the REMIC II
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed
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by an officer of the Depositor, the Trust Administrator has executed,
authenticated and delivered to or upon the order of the Depositor, the REMIC III
Certificates in authorized denominations evidencing the entire
beneficial ownership interest in REMIC III.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Servicers to Act as Servicers.
(a) Unless otherwise specified, all references to actions to
be taken or previously taken by "the Servicer" under this Article III or any
other provision of this Agreement with respect to a Mortgage Loan or Mortgage
Loans or with respect to an REO Property or REO Properties shall be only to
actions to be taken or previously taken by each Servicer with respect to a
Mortgage Loan or Mortgage Loans serviced by such Servicer or with respect to an
REO Property or REO Properties administered by such Servicer. Furthermore,
unless otherwise specified, all references to actions to be taken or previously
taken by "the Servicer" under this Article III or any other provision of this
Agreement with respect to "the Collection Account" or "the Servicing Account"
shall be only to actions to be taken or previously taken by each Servicer with
respect to the Collection Account or the Servicing Account to be established and
maintained by such Servicer. Consistent with the foregoing, but only insofar as
the context so permits, this Article III is to be read with respect to each
Servicer as if such Servicer alone was servicing and administering its
respective Mortgage Loans hereunder.
(b) The Servicer shall service and administer the Mortgage
Loans on behalf of the Trustee and in the best interests of and for the benefit
of the Certificateholders and the Certificate Insurer (as determined by the
Servicer in its reasonable judgment) in accordance with the terms of this
Agreement and the respective Mortgage Loans and, to the extent consistent with
such terms, in the same manner in which it services and administers similar
mortgage loans for its own portfolio, giving due consideration to customary and
usual standards of practice of mortgage lenders and loan servicers administering
similar mortgage loans but without regard to:
(i) any relationship that the Servicer, any
Sub-Servicer or any Affiliate of the Servicer or any
Sub-Servicer may have with the related Mortgagor;
(ii) the ownership or non-ownership of any Certificate
by the Servicer or any Affiliate of the Servicer;
(iii) the Servicer's obligation to make P&I Advances or
Servicing Advances; or
(iv) the Servicer's or any Sub-Servicer's right to
receive compensation for its services hereunder or with
respect to any particular transaction.
To the extent consistent with the foregoing, ___________, as Servicer (a) shall
seek to maximize the timely and complete recovery of principal and interest on
the Mortgage Notes and (b) shall waive (or permit a subservicer to waive) a
Prepayment Charge only under the following circumstances: (i) such waiver is
standard and customary in servicing similar Mortgage Loans and (ii) either (A)
such waiver would, in the reasonable judgement of the ____________, as Servicer,
maximize recovery of total proceeds taking into account the value of such
Prepayment Charge and the related Mortgage Loan and, if such waiver is made in
connection with a refinancing of the related Mortgage Loan, such refinancing is
related to a default or a reasonably foreseeable default or (B) such waiver is
made in connection with a refinancing of the related Mortgage Loan unrelated to
a default or a reasonably foreseeable default where (x) the related mortgagor
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has stated to ____________, as Servicer or an applicable subservicer an
intention to refinance the related Mortgage Loan and (y) ____________, as
Servicer has concluded in its reasonable judgement that the waiver of such
Prepayment Charge would induce such mortgagor to refinance with ____________. If
a Prepayment Charge is waived as permitted by meeting the standards described in
clauses (i) and (ii)(B) above, then ____________, in its capacity as Servicer is
required to pay the amount of such waived Prepayment Charge, for the benefit of
the Holders of the Class P Certificates, by depositing such amount into the
Collection Account together with and at the time that the amount prepaid on the
related Mortgage Loan is required to be deposited into the Collection Account.
To the extent consistent with the foregoing, ____________, as Servicer (a) shall
seek to maximize the timely and complete recovery of principal and interest on
the Mortgage Notes and (b) shall only waive (or permit a subservicer to waive) a
Prepayment Charge or part of a Prepayment Charge if such waiver would maximize
recovery of total proceeds taking into account the value of such Prepayment
Charge and the related Mortgage Loan, and doing so is standard and customary in
servicing similar Mortgage Loans. ____________, as Servicer, may waive a
Prepayment Charge on any Mortgage Loan if the related Mortgagor has chosen to
refinance such Mortgage Loan through the same lender; provided, however,
____________, as Servicer, must pay the amount of the waived Prepayment Charge,
for the benefit of the Holders of the Class P Certificates, by depositing such
amount into the Collection Account together with and at the time that the amount
prepaid on the related Mortgage Loan is required to be deposited into the
Collection Account. Notwithstanding any other provisions of this Agreement, any
payments made by ____________ in respect of any waived Prepayment Charges
pursuant to clauses (i) and (ii)(B) above or any payments made by ____________
in respect of any waived Prepayment Charges pursuant to the preceding sentence
shall be deemed to be paid outside of the Trust Fund. Subject only to the
above-described servicing standards and the terms of this Agreement and of the
respective Mortgage Loans, the Servicer shall have full power and authority,
acting alone or through Sub-Servicers as provided in Section 3.02, to do or
cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, the Servicer in its own name or in the name of a
Sub-Servicer is hereby authorized and empowered by the Trustee when the Servicer
believes it appropriate in its best judgment in accordance with the servicing
standards set forth above, to execute and deliver, on behalf of the
Certificateholders and the Trustee, and upon notice to the Trustee and the Trust
Administrator, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Mortgage Loans and the Mortgaged Properties and to institute
foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert
the ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Trustee and Certificateholders. The Servicer shall
service and administer the Mortgage Loans in accordance with applicable state
and federal law and shall provide to the Mortgagors any reports required to be
provided to them thereby. The Servicer shall also comply in the performance of
this Agreement with all reasonable rules and requirements of each insurer under
any standard hazard insurance policy. Subject to Section 3.17, the Trustee shall
execute, at the written request of the Servicer, and furnish to the Servicer and
any Sub-Servicer any special or limited powers of attorney and other documents
necessary or appropriate to enable the Servicer or any Sub-Servicer to carry out
their servicing and administrative duties hereunder and the Trustee shall not be
liable for the actions of the Servicer or any Sub-Servicers under such powers of
attorney.
Subject to Section 3.09 hereof, in accordance with the
standards of the preceding paragraph, the Servicer shall advance or cause to be
advanced funds as necessary for the purpose of effecting the timely payment of
taxes and assessments on the Mortgaged Properties, which advances shall be
Servicing Advances reimbursable in the first instance from related collections
from the Mortgagors pursuant to Section 3.09, and further as provided in Section
3.11. Any cost incurred by the Servicer or by Sub-Servicers in effecting the
timely payment of taxes and assessments on a Mortgaged Property shall
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not, for the purpose of calculating distributions to Certificateholders, be
added to the unpaid principal balance of the related Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary,
the Servicer may not make any future advances with respect to a Mortgage Loan
(except as provided in Section 4.03) and the Servicer shall not (i) permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Rate, reduce or increase the principal balance (except for reductions resulting
from actual payments of principal) or change the final maturity date on such
Mortgage Loan (unless, as provided in Section 3.07, the Mortgagor is in default
with respect to the Mortgage Loan or such default is, in the judgment of the
Servicer, reasonably foreseeable) or (ii) permit any modification, waiver or
amendment of any term of any Mortgage Loan that would both (A) effect an
exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or
Treasury regulations promulgated thereunder) and (B) cause any of REMIC I, REMIC
II or REMIC III to fail to qualify as a REMIC under the Code or the imposition
of any tax on "prohibited transactions" or "contributions after the startup
date" under the REMIC Provisions.
The Servicer may delegate its responsibilities under this
Agreement; provided, however, that no such delegation shall release the Servicer
from the responsibilities or liabilities arising under this Agreement.
SECTION 3.02. Sub-Servicing Agreements Between Servicer and
Sub-Servicers.
(a) The Servicer may enter into Sub-Servicing Agreements with
Sub-Servicers for the servicing and administration of the Mortgage Loans;
provided, however, that any Sub-Servicer shall be acceptable to the Certificate
Insurer and provided such agreements would not result in a withdrawal or a
downgrading by any Rating Agency of the rating or any shadow rating on any Class
of Certificates. The Trust Administrator and the Trustee are hereby authorized
to acknowledge, at the request of the Servicer, any Sub-Servicing Agreement that
meets the requirements applicable to Sub-Servicing Agreements set forth in this
Agreement and that is otherwise permitted under this Agreement.
Each Sub-Servicer shall be (i) authorized to transact business
in the state or states where the related Mortgaged Properties it is to service
are situated, if and to the extent required by applicable law to enable the
Sub-Servicer to perform its obligations hereunder and under the Sub-Servicing
Agreement and (ii) a Freddie Mac or Fannie Mae approved mortgage servicer. Each
Sub-Servicing Agreement must impose on the Sub-Servicer requirements conforming
to the provisions set forth in Section 3.08 and provide for servicing of the
Mortgage Loans consistent with the terms of this Agreement. The Servicer will
examine each Sub-Servicing Agreement and will be familiar with the terms
thereof. The terms of any Sub- Servicing Agreement will not be inconsistent with
any of the provisions of this Agreement. The Servicer and the Sub-Servicers may
enter into and make amendments to the Sub-Servicing Agreements or enter into
different forms of Sub-Servicing Agreements; provided, however, that any such
amendments or different forms shall be consistent with and not violate the
provisions of this Agreement, and that no such amendment or different form shall
be made or entered into which could be reasonably expected to be materially
adverse to the interests of the Certificateholders without the consent of the
Certificate Insurer and the Holders of Certificates entitled to at least 66% of
the Voting Rights; provided, further, that the consent of the Holders of
Certificates entitled to at least 66% of the Voting Rights shall not be required
(i) to cure any ambiguity or defect in a Sub-Servicing Agreement, (ii) to
correct, modify or supplement any provisions of a Sub-Servicing Agreement, or
(iii) to make any other provisions with respect to matters or questions arising
under a Sub-Servicing Agreement, which, in each case, shall not be inconsistent
with the provisions of this Agreement. Any variation without the consent of the
Certificate Insurer and the Holders of Certificates entitled to at least 66% of
the Voting Rights from the provisions set forth in Section 3.08
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relating to insurance or priority requirements of Sub-Servicing Accounts, or
credits and charges to the Sub- Servicing Accounts or the timing and amount of
remittances by the Sub-Servicers to the Servicer, are conclusively deemed to be
inconsistent with this Agreement and therefore prohibited. The Servicer shall
deliver to the Trustee, the Trust Administrator and the Certificate Insurer
copies of all Sub-Servicing Agreements, and any amendments or modifications
thereof, promptly upon the Servicer's execution and delivery of such
instruments.
(b) As part of its servicing activities hereunder, the
Servicer, for the benefit of the Trustee, the Certificateholders and the
Certificate Insurer, shall enforce the obligations of each Sub- Servicer under
the related Sub-Servicing Agreement and of the related Originator and the Seller
under the related Mortgage Loan Purchase Agreement, including, without
limitation, any obligation to make advances in respect of delinquent payments as
required by a Sub-Servicing Agreement, or to purchase a Mortgage Loan on account
of missing or defective documentation or on account of a breach of a
representation, warranty or covenant, as described in Section 2.03(a). Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements, and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Servicer, in its good faith business judgment, would require were it
the owner of the related Mortgage Loans. The Servicer shall pay the costs of
such enforcement at its own expense, and shall be reimbursed therefor only (i)
from a general recovery resulting from such enforcement, to the extent, if any,
that such recovery exceeds all amounts due in respect of the related Mortgage
Loans, or (ii) from a specific recovery of costs, expenses or attorneys' fees
against the party against whom such enforcement is directed. Enforcement of the
related Mortgage Loan Purchase Agreement against the related Originator shall be
effected by the Servicer to the extent it is not the related Originator, and
otherwise by the Trustee in accordance with the foregoing provisions of this
paragraph.
SECTION 3.03. Successor Sub-Servicers.
The Servicer or the Certificate Insurer shall be entitled to
terminate any Sub-Servicing Agreement and the rights and obligations of any
Sub-Servicer pursuant to any Sub-Servicing Agreement in accordance with the
terms and conditions of such Sub-Servicing Agreement. In the event of
termination of any Sub-Servicer, all servicing obligations of such Sub-Servicer
shall be assumed simultaneously by the Servicer without any act or deed on the
part of such Sub-Servicer or the Servicer, and the Servicer either shall service
directly the related Mortgage Loans or shall enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.02.
Any Sub-Servicing Agreement shall include the provision that
such agreement may be immediately terminated by the Master Servicer, the Trust
Administrator (if the Master Servicer is the Servicer), the Trustee (if the
Trust Administrator is acting as Servicer) or the Certificate Insurer without
fee, in accordance with the terms of this Agreement, in the event that the
Servicer (or the Master Servicer or Trust Administrator, if such party is then
acting as Servicer) shall, for any reason, no longer be the Servicer (including
termination due to a Servicer Event of Default).
SECTION 3.04. Liability of the Servicer.
Notwithstanding any Sub-Servicing Agreement or the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Sub-Servicer or reference to actions taken through a Sub-Servicer or
otherwise, the Servicer shall remain obligated and primarily liable to the
Trustee, the Certificateholders and the Certificate Insurer for the servicing
and administering of the Mortgage Loans in accordance with the provisions of
Section 3.01 without diminution of such obligation
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or liability by virtue of such Sub-Servicing Agreements or arrangements or by
virtue of indemnification from the Sub-Servicer and to the same extent and under
the same terms and conditions as if the Servicer alone were servicing and
administering the Mortgage Loans. The Servicer shall be entitled to enter into
any agreement with a Sub-Servicer for indemnification of the Servicer by such
Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and the Trust Administrator, the
Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Servicer alone, and the Trust Administrator, the Trustee, Certificateholders or
the Certificate Insurer shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in Section 3.06. The Servicer shall be solely
liable for all fees owed by it to any Sub-Servicer, irrespective of whether the
Servicer's compensation pursuant to this Agreement is sufficient to pay such
fees.
SECTION 3.06. Assumption or Termination of Sub-Servicing
Agreements by Trust Administrator.
In the event the Servicer shall for any reason no longer be
the servicer (including by reason of the occurrence of a Servicer Event of
Default), the Master Servicer (or if the Master Servicer is the departing
Servicer, the Trust Administrator or its designee) shall thereupon assume all of
the rights and obligations of the Servicer under each Sub-Servicing Agreement
that the Servicer may have entered into, unless the Master Servicer (or if the
Master Servicer is the departing Servicer, the Trust Administrator or the
Trustee) or the Certificate Insurer elects to terminate any Sub-Servicing
Agreement in accordance with its terms as provided in Section 3.03. Upon such
assumption, the Master Servicer (or the Trust Administrator, its designee or the
successor servicer for the Trust Administrator appointed pursuant to Section
7.02) shall be deemed, subject to Section 3.03, to have assumed all of the
departing Servicer's interest therein and to have replaced the departing
Servicer as a party to each Sub-Servicing Agreement to the same extent as if
each Sub-Servicing Agreement had been assigned to the assuming party, except
that (i) the departing Servicer shall not thereby be relieved of any liability
or obligations under any Sub- Servicing Agreement that arose before it ceased to
be the Servicer and (ii) none of the Master Servicer, the Trust Administrator,
its designee or any successor Servicer shall be deemed to have assumed any
liability or obligation of the Servicer that arose before it ceased to be the
Servicer.
The Servicer at its expense shall, upon request of the Master
Servicer (or if the Master Servicer is the departing Servicer, the Trust
Administrator), deliver to the assuming party all documents and records relating
to each Sub-Servicing Agreement and the Mortgage Loans then being serviced and
an accounting of amounts collected and held by or on behalf of it, and otherwise
use its best efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any applicable insurance policies, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. Consistent with
the foregoing, the Servicer may in its discretion (i) waive
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any late payment charge or, if applicable, any penalty interest, or (ii) extend
the due dates for the Monthly Payments due on a Mortgage Note for a period of
not greater than 180 days; provided, however, that any extension pursuant to
clause (ii) above shall not affect the amortization schedule of any Mortgage
Loan for purposes of any computation hereunder, except as provided below. In the
event of any such arrangement pursuant to clause (ii) above, the Servicer shall
make timely advances on such Mortgage Loan during such extension pursuant to
Section 4.03 and in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangement. Notwithstanding
the foregoing, in the event that any Mortgage Loan is in default or, in the
judgment of the Servicer, such default is reasonably foreseeable, the Servicer,
consistent with the standards set forth in Section 3.01, may also waive, modify
or vary any term of such Mortgage Loan (including modifications that would
change the Mortgage Rate, forgive the payment of principal or interest or extend
the final maturity date of such Mortgage Loan), accept payment from the related
Mortgagor of an amount less than the Stated Principal Balance in final
satisfaction of such Mortgage Loan (such payment, a "Short Pay-off"), or consent
to the postponement of strict compliance with any such term or otherwise grant
indulgence to any Mortgagor (any and all such waivers, modifications, variances,
forgiveness of principal or interest, postponements, or indulgences collectively
referred to herein as "forbearance"), provided, however, that in no event shall
the Servicer grant any such forbearance (other than as permitted by the second
sentence of this Section) with respect to any one Mortgage Loan more than once
in any 12 month period or more than three times over the life of such Mortgage
Loan. The Servicer's analysis supporting any forbearance and the conclusion that
any forbearance meets the standards of Section 3.01 (including the standard that
such forbearance will maximize the timely and complete recovery of principal and
interest on the Mortgage Notes) shall be reflected in writing in the Mortgage
File and shall be provided to the Certificate Insurer upon request.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage
Loan pursuant to a Sub- Servicing Agreement, the Sub-Servicer will be required
to establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
comply with all requirements of this Agreement relating to the Collection
Account. The Sub-Servicer shall deposit in the clearing account in which it
customarily deposits payments and collections on mortgage loans in connection
with its mortgage loan servicing activities on a daily basis, and in no event
more than one Business Day after the Sub-Servicer's receipt thereof, all
proceeds of Mortgage Loans received by the Sub-Servicer less its servicing
compensation to the extent permitted by the Sub-Servicing Agreement, and shall
thereafter deposit such amounts in the Sub-Servicing Account, in no event more
than two Business Days after the receipt of such amounts. The Sub-Servicer shall
thereafter deposit such proceeds in the Collection Account or remit such
proceeds to the Servicer for deposit in the Collection Account not later than
two Business Days after the deposit of such amounts in the Sub-Servicing
Account. For purposes of this Agreement, the Servicer shall be deemed to have
received payments on the Mortgage Loans when the Sub-Servicer receives such
payments.
SECTION 3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts.
The Servicer shall establish and maintain, or cause to be
established and maintained, one or more accounts (the "Servicing Accounts"),
into which all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, hazard insurance premiums
and comparable items for the account of the Mortgagors ("Escrow Payments") shall
be deposited and retained. Servicing Accounts shall be Eligible Accounts. The
Servicer shall deposit in the clearing account in which it customarily deposits
payments and collections on mortgage loans in connection with its mortgage loan
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servicing activities on a daily basis, and in no event more than one Business
Day after the Servicer's receipt thereof, all Escrow Payments collected on
account of the Mortgage Loans and shall thereafter deposit such Escrow Payments
in the Servicing Accounts, in no event more than two Business Days after the
receipt of such Escrow Payments, all Escrow Payments collected on account of the
Mortgage Loans for the purpose of effecting the timely payment of any such items
as required under the terms of this Agreement. Withdrawals of amounts from a
Servicing Account may be made only to (i) effect payment of taxes, assessments,
hazard insurance premiums, and comparable items in a manner and at a time that
assures that the lien priority of the Mortgage is not jeopardized (or, with
respect to the payment of taxes, in a manner and at a time that avoids the loss
of the Mortgaged Property due to a tax sale or the foreclosure as a result of a
tax lien); (ii) reimburse the Servicer (or a Sub-Servicer to the extent provided
in the related Sub- Servicing Agreement) out of related collections for any
advances made pursuant to Section 3.01 (with respect to taxes and assessments)
and Section 3.14 (with respect to hazard insurance); (iii) refund to Mortgagors
any sums as may be determined to be overages; (iv) pay interest, if required and
as described below, to Mortgagors on balances in the Servicing Account; or (v)
clear and terminate the Servicing Account at the termination of the Servicer's
obligations and responsibilities in respect of the Mortgage Loans under this
Agreement in accordance with Article X. The Servicer will be responsible for the
administration of the Servicing Accounts and will be obligated to make advances
to such accounts when and as necessary to avoid the lapse of insurance coverage
on the Mortgaged Property, or which the Servicer knows, or in the exercise of
the required standard of care of the Servicer hereunder should know, is
necessary to avoid the loss of the Mortgaged Property due to a tax sale or the
foreclosure as a result of a tax lien. If any such payment has not been made and
the Servicer receives notice of a tax lien with respect to the Mortgage being
imposed, the Servicer will, within 10 business days of such notice, advance or
cause to be advanced funds necessary to discharge such lien on the Mortgaged
Property. As part of its servicing duties, the Servicer or Sub-Servicers shall
pay to the Mortgagors interest on funds in the Servicing Accounts, to the extent
required by law and, to the extent that interest earned on funds in the
Servicing Accounts is insufficient, to pay such interest from its or their own
funds, without any reimbursement therefor.
SECTION 3.10. Collection Account and Distribution Account.
(a) On behalf of the Trust Fund, the Servicer shall establish
and maintain, or cause to be established and maintained, one or more accounts
(such account or accounts, the "Collection Account"), held in trust for the
benefit of the Trustee, the Certificateholders and the Certificate Insurer. On
behalf of the Trust Fund, the Servicer shall deposit or cause to be deposited in
the clearing account in which it customarily deposits payments and collections
on mortgage loans in connection with its mortgage loan servicing activities on a
daily basis, and in no event more than one Business Day after the Servicer's
receipt thereof, and shall thereafter deposit in the Collection Account, in no
event more than two Business Days after the Servicer's receipt thereof, as and
when received or as otherwise required hereunder, the following payments and
collections received or made by it subsequent to the Cut-off Date (other than in
respect of principal or interest on the related Mortgage Loans due on or before
the Cut-off Date), or payments (other than Principal Prepayments) received by it
on or prior to the Cut-off Date but allocable to a Due Period subsequent
thereto:
(i) all payments on account of principal, including
Principal Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the
related Servicing Fee) on each Mortgage Loan;
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(iii) all Insurance Proceeds and Liquidation Proceeds
(other than proceeds collected in respect of any particular
REO Property and amounts paid in connection with a purchase of
Mortgage Loans and REO Properties pursuant to Section 10.01);
(iv) any amounts required to be deposited pursuant to
Section 3.12 in connection with any losses realized on
Permitted Investments with respect to funds held in the
Collection Account;
(v) any amounts required to be deposited by the
Servicer pursuant to the second paragraph of Section 3.14(a)
in respect of any blanket policy deductibles;
(vi) all proceeds of any Mortgage Loan repurchased or
purchased in accordance with Section 2.03 or Section 10.01;
(vii) all amounts required to be deposited in connection
with shortfalls in principal amount of Qualified Substitute
Mortgage Loans pursuant to Section 2.03; and
(viii) all Prepayment Charges collected by the Servicer
in connection with the Principal Prepayment of any of the
Mortgage Loans.
The foregoing requirements for deposit in the Collection
Accounts shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of late payment
charges, ancillary income and assumption fees, or insufficient funds charges
need not be deposited by the Servicer in the Collection Account and may be
retained by the Servicer as additional compensation. In the event the Servicer
shall deposit in the Collection Account any amount not required to be deposited
therein, it may at any time withdraw such amount from the Collection Account,
any provision herein to the contrary notwithstanding.
(b) On behalf of the Trust Fund, the Trust Administrator, as
agent for the Trustee, shall establish and maintain one or more accounts (such
account or accounts, the "Distribution Account"), held in trust for the benefit
of the Trustee, the Certificateholders and the Certificate Insurer. On behalf of
the Trust Fund, the Servicer shall deliver to the Trust Administrator in
immediately available funds for deposit in the Distribution Account on or before
5:00 p.m. New York time (i) on the Servicer Remittance Date, that portion of the
Available Distribution Amount (calculated without regard to the references in
clause (2) of the definition thereof to amounts that may be withdrawn from the
Distribution Account) for the related Distribution Date then on deposit in the
Collection Account and the amount of all Prepayment Charges collected by the
Servicer in connection with the Principal Prepayment of any of the Mortgage
Loans then on deposit in the Collection Account, and (ii) on each Business Day
as of the commencement of which the balance on deposit in the Collection Account
exceeds $75,000 following any withdrawals pursuant to the next succeeding
sentence, the amount of such excess, but only if the Collection Account
constitutes an Eligible Account solely pursuant to clause (ii) of the definition
of "Eligible Account." If the balance on deposit in the Collection Account
exceeds $75,000 as of the commencement of business on any Business Day and the
Collection Account constitutes an Eligible Account solely pursuant to clause
(ii) of the definition of "Eligible Account," the Servicer shall, on or before
5:00 p.m. New York time on such Business Day, withdraw from the Collection
Account any and all amounts payable or reimbursable to the Depositor, the
Servicer, the Trustee, the Trust Administrator, either Originator, the Seller or
any Sub- Servicer pursuant to Section 3.11 and shall pay such amounts to the
Persons entitled thereto.
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(c) Funds in the Collection Account and the Distribution
Account may be invested in Permitted Investments in accordance with the
provisions set forth in Section 3.12. The Servicer shall give notice to the
Trustee, the Trust Administrator and the Certificate Insurer of the location of
the Collection Account maintained by it when established and prior to any change
thereof. The Trust Administrator shall give notice to the Servicer, the
Depositor, the Trustee and the Certificate Insurer of the location of the
Distribution Account when established and prior to any change thereof.
(d) Funds held in the Collection Account at any time may be
delivered by the Servicer to the Trust Administrator for deposit in an account
(which may be the Distribution Account and must satisfy the standards for the
Distribution Account as set forth in the definition thereof) and for all
purposes of this Agreement shall be deemed to be a part of the Collection
Account; provided, however, that the Trustee and the Trust Administrator shall
have the sole authority to withdraw any funds held pursuant to this subsection
(d). In the event the Servicer shall deliver to the Trust Administrator for
deposit in the Distribution Account any amount not required to be deposited
therein, it may at any time request that the Trust Administrator withdraw such
amount from the Distribution Account and remit to it any such amount, any
provision herein to the contrary notwithstanding. In addition, the Servicer,
with respect to items (i) through (v) below, shall deliver to the Trust
Administrator from time to time for deposit, and the Trust Administrator, with
respect to items (i) through (vi) below, shall so deposit, in the Distribution
Account:
(i) any P&I Advances, as required pursuant to Section
4.03;
(ii) any amounts required to be deposited pursuant to
Section 3.23(d) or (f) in connection with any REO Property;
(iii) any amounts to be paid in connection with a
purchase of Mortgage Loans and REO Properties pursuant to
Section 10.01;
(iv) any amounts required to be deposited pursuant to
Section 3.24 in connection with any Prepayment Interest
Shortfall;
(v) any Stayed Funds, as soon as permitted by the
federal bankruptcy court having jurisdiction in such matters;
and
(vi) any amounts required to be transferred from the
Policy Payments Account pursuant to Section 9.04(b) on any
Distribution Date.
(e) Promptly upon receipt of any Stayed Funds, whether from
the Servicer, a trustee in bankruptcy, federal bankruptcy court or other source,
the Trust Administrator shall deposit such funds in the Distribution Account,
subject to withdrawal thereof pursuant to Section 7.02(b) or as otherwise
permitted hereunder.
(f) The Servicer shall deposit in the Collection Account any
amounts required to be deposited pursuant to Section 3.12(b) in connection with
losses realized on Permitted Investments with respect to funds held in the
Collection Account.
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SECTION 3.11. Withdrawals from the Collection Account and
Distribution Account.
(a) The Servicer shall, from time to time, make withdrawals
from the Collection Account for any of the following purposes or as described in
Section 4.03:
(i) to remit to the Trust Administrator for deposit in
the Distribution Account the amounts required to be so
remitted pursuant to Section 3.10(b) or permitted to be so
remitted pursuant to the first sentence of Section 3.10(d);
(ii) subject to Section 3.16(d), to reimburse the
Servicer for P&I Advances, but only to the extent of amounts
received which represent Late Collections (net of the related
Servicing Fees) of Monthly Payments, Liquidation Proceeds and
Insurance Proceeds on Mortgage Loans with respect to which
such P&I Advances were made in accordance with the provisions
of Section 4.03;
(iii) subject to Section 3.16(d), to pay the Servicer or
any Sub-Servicer (a) any unpaid Servicing Fees, (b) any
unreimbursed Servicing Advances with respect to each Mortgage
Loan, but only to the extent of any Late Collections,
Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan, and (c) any Nonrecoverable
Servicing Advances with respect to the final liquidation of a
Mortgage Loan, but only to the extent that Late Collections,
Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan are insufficient to reimburse
the Servicer or any Sub-Servicer for Servicing Advances;
(iv) to pay to the Servicer as servicing compensation
(in addition to the Servicing Fee) on the Servicer Remittance
Date any interest or investment income earned
on funds deposited in the Collection Account;
(v) to pay to the Servicer, the Master Servicer, the
Depositor, each Originator or the Seller, as the case may be,
with respect to each Mortgage Loan that has previously been
purchased or replaced pursuant to Section 2.03 or Section
3.16(c) all amounts received thereon subsequent to the date of
purchase or substitution, as the case may be;
(vi) to reimburse the Servicer for any P&I Advance
previously made which the Servicer has determined to be a
Nonrecoverable P&I Advance in accordance with the provisions
of Section 4.03;
(vii) to reimburse the Servicer or the Depositor for
expenses incurred by or reimbursable to the Servicer or the
Depositor, as the case may be, pursuant to Section 6.03;
(viii) to reimburse the Servicer, the Trustee or the Trust
Administrator, as the case may be, for expenses reasonably
incurred in connection with any breach or defect giving rise
to the purchase obligation under Section 2.03 or Section 2.04
of this Agreement, including any expenses arising out of the
enforcement of the purchase obligation;
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(ix) to pay, or to reimburse the Servicer for Servicing
Advances in respect of, expenses incurred in connection with
any Mortgage Loan pursuant to Section 3.16(b); and
(x) to clear and terminate the Collection Account
pursuant to Section 10.01.
The Servicer shall keep and maintain separate accounting, on a Mortgage
Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from
the Collection Account, to the extent held by or on behalf of it, pursuant to
subclauses (ii), (iii), (iv), (v), (vi), (viii) and (ix) above. The Servicer
shall provide written notification to the Trust Administrator, on or prior to
the next succeeding Servicer Remittance Date, upon making any withdrawals from
the Collection Account pursuant to subclauses (vi) and (vii) above; provided
that an Officer's Certificate in the form described under Section 4.03(d) shall
suffice for such written notification to the Trust Administrator in respect
hereof.
(b) The Trust Administrator shall, from time to time, make
withdrawals from the Distribution Account, for any of the following purposes,
without priority:
(i) to make distributions to Certificateholders and the
Certificate Insurer in accordance with Section 4.01;
(ii) to pay to itself and the Trustee amounts to which
each is entitled pursuant to Section 8.05;
(iii) to pay to the Master Servicer on each Distribution
Date the Master Servicing Fee and as servicing compensation
any interest or investment income earned on funds deposited in
the Distribution Account pursuant to Section 3.12(c);
(iv) to reimburse itself pursuant to Section 7.02;
(v) to pay any amounts in respect of taxes pursuant to
Section 11.01(g)(iii); and
(vi) to clear and terminate the Distribution Account
pursuant to Section 10.01.
Notwithstanding the foregoing, the Trust Administrator shall be
entitled to withdraw amounts from the Distribution Account to transfer funds to
the Expense Account on the Business Day immediately preceding each Distribution
Date pursuant to Section 3.25(b) prior to any payments to Certificateholders
and the Certificate Insurer pursuant to Section 4.01.
SECTION 3.12. Investment of Funds in the Collection Account,
the Expense Account and the Distribution
Account.
(a) The Servicer may direct any depository institution
maintaining the Collection Account (for purposes of this Section 3.12, an
"Investment Account"), and the Master Servicer may direct any depository
institution maintaining the Distribution Account and the Expense Account (each,
for purposes of this Section 3.12, an "Investment Account"), to invest the funds
(other than the Initial Deposit) in such Investment Account in one or more
Permitted Investments bearing interest or sold at a discount, and maturing,
unless payable on demand, (i) no later than the Business Day immediately
preceding the date on which such funds are required to be withdrawn from such
account pursuant to this Agreement, if a Person other than the Trust
Administrator is the obligor thereon, and (ii) no later than the date on which
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such funds are required to be withdrawn from such account pursuant to this
Agreement, if the Trust Administrator is the obligor thereon. All such Permitted
Investments shall be held to maturity, unless payable on demand. Any investment
of funds in an Investment Account shall be made in the name of the Trust
Administrator (in its capacity as such), as agent for the Trustee, or in the
name of a nominee of the Trust Administrator. The Trust Administrator shall be
entitled to sole possession (except with respect to investment direction of
funds held in the Collection Account, the Distribution Account and the Expense
Account and any income and gain realized thereon) over each such investment, and
any certificate or other instrument evidencing any such investment shall be
delivered directly to the Trust Administrator or its agent, together with any
document of transfer necessary to transfer title to such investment to the Trust
Administrator or its nominee. In the event amounts on deposit in an Investment
Account are at any time invested in a Permitted Investment payable on demand,
the Trust Administrator shall:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on
the last day such Permitted Investment may otherwise
mature hereunder in an amount equal to the lesser of
(1) all amounts then payable thereunder and (2) the
amount required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly
upon determination by a Responsible Officer of the
Trust Administrator that such Permitted Investment
would not constitute a Permitted Investment in
respect of funds thereafter on deposit in the
Investment Account.
(b) All income and gain realized from the investment of funds
deposited in the Collection Account and any REO Account held by or on behalf of
the Servicer shall be for the benefit of the Servicer and shall be subject to
its withdrawal in accordance with Section 3.11 or Section 3.23, as applicable.
The Servicer shall deposit in the Collection Account or any REO Account, as
applicable, the amount of any loss of principal incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon
realization of such loss.
(c) All income and gain realized from the investment of funds
deposited in the Distribution Account and the Expense Account held by or on
behalf of the Master Servicer shall be for the benefit of the Master Servicer
and shall be subject to its withdrawal by the Trustee or the Trust Administrator
for distribution in accordance with Section 3.11 or Section 3.25, as applicable.
The Master Servicer shall deposit in the Distribution Account and the Expense
Account, as applicable, the amount of any loss of principal incurred in respect
of any such Permitted Investment made with funds in such accounts immediately
upon realization of such loss.
(d) Except as otherwise expressly provided in this Agreement,
if any default occurs in the making of a payment due under any Permitted
Investment, or if a default occurs in any other performance required under any
Permitted Investment, the Trustee may and, subject to Section 8.01 and Section
8.02(v), upon the request of the Certificate Insurer or the Holders of
Certificates representing more than 50% of the Voting Rights allocated to any
Class of Certificates, shall take such action as may be appropriate to enforce
such payment or performance, including the institution and prosecution of
appropriate proceedings.
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SECTION 3.13. [intentionally omitted]
SECTION 3.14. Maintenance of Hazard Insurance and Errors and
Omissions and Fidelity Coverage.
(a) The Servicer shall cause to be maintained for each
Mortgage Loan fire insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the lesser of the current
principal balance of such Mortgage Loan and the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis, in each case in an amount not less than
such amount as is necessary to avoid the application of any coinsurance clause
contained in the related hazard insurance policy. The Servicer shall also cause
to be maintained fire insurance with extended coverage on each REO Property in
an amount which is at least equal to the lesser of (i) the maximum insurable
value of the improvements which are a part of such property and (ii) the
outstanding principal balance of the related Mortgage Loan at the time it became
an REO Property. The Servicer will comply in the performance of this Agreement
with all reasonable rules and requirements of each insurer under any such hazard
policies. Any amounts to be collected by the Servicer under any such policies
(other than amounts to be applied to the restoration or repair of the property
subject to the related Mortgage or amounts to be released to the Mortgagor in
accordance with the procedures that the Servicer would follow in servicing loans
held for its own account, subject to the terms and conditions of the related
Mortgage and Mortgage Note) shall be deposited in the Collection Account,
subject to withdrawal pursuant to Section 3.11, if received in respect of a
Mortgage Loan, or in the REO Account, subject to withdrawal pursuant to Section
3.23, if received in respect of an REO Property. Any cost incurred by the
Servicer in maintaining any such insurance shall not, for the purpose of
calculating distributions to Certificateholders and the Certificate Insurer, be
added to the unpaid principal balance of the related Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so permit. It is understood
and agreed that no earthquake or other additional insurance is to be required of
any Mortgagor other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Mortgaged Property or REO Property is at any time in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards and flood insurance has been made available, the Servicer
will cause to be maintained a flood insurance policy in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the unpaid
principal balance of the related Mortgage Loan and (ii) the maximum amount of
such insurance available for the related Mortgaged Property under the national
flood insurance program (assuming that the area in which such Mortgaged Property
is located is participating in such program).
In the event that the Servicer shall obtain and maintain a
blanket policy with an insurer having a General Policy Rating of A:X or better
in Best's Key Rating Guide (or such other rating that is comparable to such
rating) insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first two sentences of this Section 3.14, it being understood and agreed that
such policy may contain a deductible clause, in which case the Servicer shall,
in the event that there shall not have been maintained on the related Mortgaged
Property or REO Property a policy complying with the first two sentences of this
Section 3.14, and there shall have been one or more losses which would have been
covered by such policy, deposit to the Collection Account from its own funds the
amount not otherwise payable under the blanket policy because of such deductible
clause. In connection with its activities as administrator and servicer of the
Mortgage Loans, the Servicer agrees to prepare and present, on behalf of itself,
the Trustee, Certificateholders and the Certificate Insurer, claims under any
such blanket policy in a timely fashion in accordance with the terms of such
policy.
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(b) The Servicer shall keep in force during the term of this
Agreement a policy or policies of insurance covering errors and omissions for
failure in the performance of the Servicer's obligations under this Agreement,
which policy or policies shall be in such form and amount that would meet the
requirements of Fannie Mae or Freddie Mac if it were the purchaser of the
Mortgage Loans, unless the Servicer has obtained a waiver of such requirements
from Fannie Mae or Freddie Mac. The Servicer shall also maintain a fidelity bond
in the form and amount that would meet the requirements of Fannie Mae or Freddie
Mac, unless the Servicer has obtained a waiver of such requirements from Fannie
Mae or Freddie Mac. The Servicer shall be deemed to have complied with this
provision if an Affiliate of the Servicer has such errors and omissions and
fidelity bond coverage and, by the terms of such insurance policy or fidelity
bond, the coverage afforded thereunder extends to the Servicer. Any such errors
and omissions policy and fidelity bond shall by its terms not be cancelable
without thirty days' prior written notice to the Trustee and the Trust
Administrator. The Servicer shall also cause each Sub-Servicer to maintain a
policy of insurance covering errors and omissions and a fidelity bond which
would meet such requirements.
SECTION 3.15. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
The Servicer will, to the extent it has knowledge of any
conveyance or prospective conveyance of any Mortgaged Property by any Mortgagor
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains or is to remain liable under the Mortgage Note and/or the
Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan
under the "due-on-sale" clause, if any, applicable thereto; provided, however,
that the Servicer shall not be required to take such action if in its sole
business judgment the Servicer believes it is not in the best interests of the
Trust Fund and shall not exercise any such rights if prohibited by law from
doing so. If the Servicer reasonably believes it is unable under applicable law
to enforce such "due-on-sale" clause, or if any of the other conditions set
forth in the proviso to the preceding sentence apply, the Servicer will enter
into an assumption and modification agreement from or with the person to whom
such property has been conveyed or is proposed to be conveyed, pursuant to which
such person becomes liable under the Mortgage Note and, to the extent permitted
by applicable state law, the Mortgagor remains liable thereon. The Servicer is
also authorized to enter into a substitution of liability agreement with such
person, pursuant to which the original Mortgagor is released from liability and
such person is substituted as the Mortgagor and becomes liable under the
Mortgage Note, provided that no such substitution shall be effective unless such
person satisfies the underwriting criteria of the Servicer and has a credit risk
rating at least equal to that of the original Mortgagor. In connection with any
assumption or substitution, the Servicer shall apply such underwriting standards
and follow such practices and procedures as shall be normal and usual in its
general mortgage servicing activities and as it applies to other mortgage loans
owned solely by it. The Servicer shall not take or enter into any assumption and
modification agreement, however, unless (to the extent practicable in the
circumstances) it shall have received confirmation, in writing, of the continued
effectiveness of any applicable hazard insurance policy. Any fee collected by
the Servicer in respect of an assumption, modification or substitution of
liability agreement shall be retained by the Servicer as additional servicing
compensation. In connection with any such assumption, no material term of the
Mortgage Note (including but not limited to the related Mortgage Rate and the
amount of the Monthly Payment) may be amended or modified, except as otherwise
required pursuant to the terms thereof. The Servicer shall notify the Trustee
and the Trust Administrator that any such substitution, modification or
assumption agreement has been completed by forwarding to the Trust Administrator
(with a copy to the Trustee) the executed original of such substitution,
modification or assumption agreement, which document shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
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Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or by the terms of the Mortgage Note or any
assumption which the Servicer may be restricted by law from preventing, for any
reason whatever. For purposes of this Section 3.15, the term "assumption" is
deemed to also include a sale (of the Mortgaged Property) subject to the
Mortgage that is not accompanied by an assumption or substitution of liability
agreement.
SECTION 3.16. Realization Upon Defaulted Mortgage Loans.
(a) The Servicer shall use its best efforts, consistent with
Accepted Servicing Practices, to foreclose upon or otherwise comparably convert
the ownership of properties securing such of the Mortgage Loans (including
selling any such Mortgage Loans other than converting the ownership of the
related properties) as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.07. The Servicer shall be responsible for all costs and
expenses incurred by it in any such proceedings; provided, however, that such
costs and expenses will be recoverable as Servicing Advances by the Servicer as
contemplated in Section 3.11 and Section 3.23. The foregoing is subject to the
provision that, in any case in which Mortgaged Property shall have suffered
damage from an Uninsured Cause, the Servicer shall not be required to expend its
own funds toward the restoration of such property unless it shall determine in
its discretion that such restoration will increase the proceeds of liquidation
of the related Mortgage Loan after reimbursement to itself for such expenses.
(b) Notwithstanding the foregoing provisions of this Section
3.16 or any other provision of this Agreement, with respect to any Mortgage Loan
as to which the Servicer has received actual notice of, or has actual knowledge
of, the presence of any toxic or hazardous substance on the related Mortgaged
Property, the Servicer shall not, on behalf of the Trustee, either (i) obtain
title to such Mortgaged Property as a result of or in lieu of foreclosure or
otherwise, or (ii) otherwise acquire possession of, or take any other action
with respect to, such Mortgaged Property, if, as a result of any such action,
the Trustee, the Trust Administrator, the Trust Fund, the Certificateholders or
the Certificate Insurer would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
or any comparable law, unless the Servicer has also previously determined, based
on its reasonable judgment and a report prepared by a Person who regularly
conducts environmental audits using customary industry standards, that:
(1) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, that it would be in
the best economic interest of the Trust Fund to take such
actions as are necessary to bring the Mortgaged Property into
compliance therewith; and
(2) there are no circumstances present at such
Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials for which investigation,
testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or
regulation, or that if any such materials are present for
which such action could be required, that it would be in the
best economic interest of the Trust Fund to take such actions
with respect to the affected Mortgaged Property.
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The cost of the environmental audit report contemplated by
this Section 3.16 shall be advanced by the Servicer, subject to the Servicer's
right to be reimbursed therefor from the Collection Account as provided in
Section 3.11(a)(ix), such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Collection Account received in
respect of the affected Mortgage Loan or other Mortgage Loans.
If the Servicer determines, as described above, that it is in
the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes or petroleum-based materials affecting any such Mortgaged Property, then
the Servicer shall take such action as it deems to be in the best economic
interest of the Trust Fund; provided that any amounts disbursed by the Servicer
pursuant to this Section 3.16(b) shall constitute Servicing Advances, subject to
Section 4.03(d). The cost of any such compliance, containment, cleanup or
remediation shall be advanced by the Servicer, subject to the Servicer's right
to be reimbursed therefor from the Collection Account as provided in Section
3.11(a)(iii) and (a)(ix), such right of reimbursement being prior to the rights
of Certificateholders to receive any amount in the Collection Account received
in respect of the affected Mortgage Loan or other Mortgage Loans.
(c) The Master Servicer may at its option purchase from REMIC
I any Mortgage Loan or related REO Property that is 90 days or more delinquent,
which the Master Servicer determines in good faith will otherwise become subject
to foreclosure proceedings (evidence of such determination to be delivered in
writing to the Trust Administrator, the Trustee and the Certificate Insurer
prior to purchase), at a price equal to the Purchase Price; provided, however,
that (i) the Master Servicer shall purchase any such Mortgage Loans or related
REO Properties on the basis of delinquency, purchasing the most delinquent
Mortgage Loans or related REO Properties first and (ii) after it has purchased
5% of the Mortgage Loans and related REO Properties (including any Mortgage
Loans or related REO Properties purchased by ____________ as provided below), by
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date,
pursuant to clause (i) above, the Master Servicer must also obtain the consent
of the Certificate Insurer prior to any further purchases, provided that failure
of the Certificate Insurer to respond within five Business Days following actual
receipt of any such request for consent by the Master Servicer shall be deemed
to constitute consent to the additional purchases identified in such request for
consent. The Purchase Price for any Mortgage Loan or related REO Property
purchased hereunder shall be deposited in the Distribution Account, and the
Trust Administrator, upon receipt of such deposit, shall release or cause to be
released to the Master Servicer the related Mortgage File and the Trustee shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as the Master Servicer shall furnish and as shall be necessary
to vest in the Master Servicer title to any Mortgage Loan or related REO
Property released pursuant hereto. Notwithstanding the foregoing, prior to
purchasing any Mortgage Loan or related REO Property on Part B of Schedule 1
attached hereto pursuant to this Section 3.16(c), the Master Servicer must give
____________ the right of first refusal to purchase such Mortgage Loan or
related REO Property by written notice; and if ____________ does not exercise
such right within 10 Business Days after receipt of such written notice, the
Master Servicer may purchase such Mortgage Loan or related REO Property. If
____________ purchases such Mortgage Loan or related REO Property, the Purchase
Price shall be deposited in the Distribution Account by ____________, and the
Trust Administrator, upon receipt of such deposit, shall release or cause to be
released to ____________ the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
____________ shall furnish and as shall be necessary to vest in ____________
title to any Mortgage Loan or related REO Property released pursuant hereto.
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(d) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan,
will be applied in the following order of priority: FIRST, to reimburse the
Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances and
P&I Advances, pursuant to Section 3.11(a)(ii) or (a)(iii); SECOND, to accrued
and unpaid interest on the Mortgage Loan, to the date of the Final Recovery
Determination, or to the Due Date prior to the Distribution Date on which such
amounts are to be distributed if not in connection with a Final Recovery
Determination; and THIRD, as a recovery of principal of the Mortgage Loan. If
the amount of the recovery so allocated to interest is less than the full amount
of accrued and unpaid interest due on such Mortgage Loan, the amount of such
recovery will be allocated by the Servicer as follows: FIRST, to unpaid
Servicing Fees; and SECOND, to the balance of the interest then due and owing.
The portion of the recovery so allocated to unpaid Servicing Fees shall be
reimbursed to the Servicer or any Sub-Servicer pursuant to Section 3.11(a)(iii).
SECTION 3.17. Trustee and Trust Administrator to Cooperate;
Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the
receipt by the Servicer of a notification that payment in full shall be escrowed
in a manner customary for such purposes, the Servicer will notify or cause to be
notified the Trust Administrator by a certification in the form of Exhibit E-2
(which certification shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required to
be deposited in the Collection Account pursuant to Section 3.10 have been or
will be so deposited) of a Servicing Officer and shall request delivery to it of
the Mortgage File. Upon receipt of such certification and request, the Trust
Administrator shall, within five Business Days, release and send by overnight
mail, at the expense of the Servicer, the related Mortgage File to the Servicer.
The Trust Administrator agrees to indemnify the Servicer, out of its own funds,
for any loss, liability or expense (other than special, indirect, punitive or
consequential damages which will not be paid by the Trust Administrator)
incurred by the Servicer as a proximate result of the Trust Administrator's
breach of its obligations pursuant to this Section 3.17. No expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Collection Account or the Distribution Account. The Trust
Administrator will provide to the Certificate Insurer and the Trustee an updated
listing of any Mortgage Files released pursuant to this Section 3.17(a) on March
30, June 30, September 30 and December 30 of each year, beginning in March 1999
and as otherwise requested by the Certificate Insurer or the Trustee.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any insurance policy relating to the Mortgage Loans, the Trust Administrator
shall, upon any request made by or on behalf of the Servicer and delivery to the
Trust Administrator of a Request for Release in the form of Exhibit E-l, release
the related Mortgage File to the Servicer, and the Trustee shall, at the
direction of the Servicer, execute such documents as shall be necessary to the
prosecution of any such proceedings. Such Request for Release shall obligate the
Servicer to return each and every document previously requested from the
Mortgage File to the Trust Administrator when the need therefor by the Servicer
no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Collection Account or the Mortgage File or such document has been delivered to
an attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Servicer has delivered, or caused to be delivered, to the Trust
Administrator an additional Request for Release certifying as to such
liquidation or action or proceedings. Upon the request of the Trust
Administrator, the Trustee or the Certificate Insurer, the Servicer shall
provide notice to the Trust
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Administrator, the Trustee and the Certificate Insurer of the name and address
of the Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Mortgage Loan was liquidated and that all
amounts received or to be received in connection with such liquidation that are
required to be deposited into the Collection Account have been so deposited, or
that such Mortgage Loan has become an REO Property, any outstanding Requests for
Release with respect to such Mortgage Loan shall be released by the Trust
Administrator to the Servicer or its designee.
(c) Upon written certification of a Servicing Officer, the
Trustee shall execute and deliver to the Servicer or the Sub-Servicer, as the
case may be, and upon the request of the Certificate Insurer the Servicer shall
deliver or cause to be delivered to the Certificate Insurer copies of, any court
pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Mortgagor on the Mortgage Note or
Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or
rights provided by the Mortgage Note or Mortgage or otherwise available at law
or in equity. Each such certification shall include a request that such
pleadings or documents be executed by the Trustee and a statement as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.
SECTION 3.18. Servicing Compensation.
As compensation for the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to the Master Servicing Fee
with respect to each Mortgage Loan payable solely from payments of interest in
respect of such Mortgage Loan. As compensation for the activities of the
Servicer hereunder, the Servicer shall be entitled to the Servicing Fee with
respect to each Mortgage Loan payable solely from payments of interest in
respect of such Mortgage Loan, subject to Section 3.24. In addition, the
Servicer shall be entitled to recover unpaid Servicing Fees out of Insurance
Proceeds or Liquidation Proceeds to the extent permitted by Section 3.11(a)(iii)
and out of amounts derived from the operation and sale of an REO Property to the
extent permitted by Section 3.23. The right to receive the Servicing Fee may not
be transferred in whole or in part except in connection with the transfer of all
of the Servicer's responsibilities and obligations under this Agreement;
provided, however, that the Servicer may pay from the Servicing Fee any amounts
due to a Sub-Servicer pursuant to a Sub-Servicing Agreement entered into under
Section 3.02.
Additional servicing compensation in the form of assumption
fees, ancillary income and late payment charges, insufficient funds charges or
otherwise (subject to Section 3.24 and other than Prepayment Charges) shall be
retained by the Servicer only to the extent such fees or charges are received by
the Servicer. The Servicer shall also be entitled pursuant to Section
3.11(a)(iv) to withdraw from the Collection Account and pursuant to Section
3.23(b) to withdraw from any REO Account, as additional servicing compensation,
interest or other income earned on deposits therein, subject to Section 3.12 and
Section 3.24. The Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder (including premiums for
the insurance required by Section 3.14, to the extent such premiums are not paid
by the related Mortgagors or by a Sub-Servicer and servicing compensation of
each Sub-Servicer) and shall not be entitled to reimbursement therefor except as
specifically provided herein.
The Master Servicer shall be entitled pursuant to Section 3.11
to be paid by the Trust Administrator from the Distribution Account, pursuant to
Section 3.25 to be paid by the Trust
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Administrator from the Expense Account, as additional servicing compensation,
interest or other income earned on deposits therein, subject to Section 3.12.
The Servicer shall be required to pay all expenses incurred by it in connection
with its servicing activities hereunder (including to the extent provided herein
in Section 8.05, the fees and expenses of the Trustee and the Trust
Administrator) and shall not be entitled to reimbursement therefor except as
specifically provided herein.
SECTION 3.19. Reports to the Trust Administrator and the
Trustee; Collection Account Statements.
Not later than twenty days after each Distribution Date, the
Servicer shall forward, upon request, to the Trust Administrator, the Trustee,
the Certificate Insurer and the Depositor the most current available bank
statement for the Collection Account. Copies of such statement shall be provided
by the Trust Administrator to any Certificateholder and to any Person identified
to the Trust Administrator as a prospective transferee of a Certificate, upon
request at the expense of the requesting party, provided such statement is
delivered by the Servicer to the Trust Administrator.
SECTION 3.20. Statement as to Compliance.
The Servicer will deliver to the Trust Administrator, the
Trustee, the Certificate Insurer and the Depositor not later than 90 days
following the end of the fiscal year of the Servicer, commencing in _____, which
as of the Closing Date ends on the last day in December with respect to
_____________ and ends on the last day of _______ with respect to ___________,
an Officers' Certificate stating, as to each signatory thereof, that (i) a
review of the activities of the Servicer during the preceding year and of
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all of its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Copies of any such statement shall be provided by the Trust
Administrator to any Certificateholder and to any Person identified to the Trust
Administrator as a prospective transferee of a Certificate, upon request at the
expense of the requesting party, provided such statement is delivered by the
Servicer to the Trust Administrator.
SECTION 3.21. Independent Public Accountants' Servicing
Report.
Not later than 90 days following the end of each fiscal year
of the Servicer, commencing in ____, the Servicer, at its expense, shall cause a
nationally recognized firm of independent certified public accountants to
furnish to the Servicer a report stating that (i) it has obtained a letter of
representation regarding certain matters from the management of the Servicer
which includes an assertion that the Servicer has complied with certain minimum
residential mortgage loan servicing standards, identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the servicing of residential mortgage
loans during the most recently completed fiscal year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. In rendering its report such firm may
rely, as to matters relating to the direct servicing of residential mortgage
loans by Sub-Servicers, upon comparable reports of firms of independent
certified public accountants rendered on the basis of examinations conducted in
accordance with the same standards (rendered within one year of such report)
with respect to those Sub-Servicers. Immediately upon receipt of such report,
the Servicer shall furnish a copy of such report to the Trust Administrator, the
Trustee, the Certificate Insurer and each Rating Agency. Copies of such
statement shall be provided by the Trust
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Administrator to any Certificateholder upon request at the Servicer's expense,
provided that such statement is delivered by the Servicer to the Trust
Administrator.
SECTION 3.22. Access to Certain Documentation.
The Servicer shall provide to the Office of Thrift
Supervision, the FDIC, and any other federal or state banking or insurance
regulatory authority that may exercise authority over any Certificateholder,
access to the documentation regarding the Mortgage Loans required by applicable
laws and regulations. Such access shall be afforded without charge, but only
upon reasonable request and during normal business hours at the offices of the
Servicer designated by it. In addition, access to the documentation regarding
the Mortgage Loans will be provided to any Certificateholder, the Certificate
Insurer, the Trustee, the Trust Administrator and to any Person identified to
the Servicer as a prospective transferee of a Certificate, upon reasonable
request during normal business hours at the offices of the Servicer designated
by it at the expense of the Person requesting such access.
SECTION 3.23. Title, Management and Disposition of REO
Property.
(a) The deed or certificate of sale of any REO Property shall
be taken in the name of the Trustee, or its nominee, in trust for the benefit of
the Certificateholders and the Certificate Insurer. The Servicer, on behalf of
REMIC I, shall either sell any REO Property within three years after REMIC I
acquires ownership of such REO Property for purposes of Section 860G(a)(8) of
the Code or request from the Internal Revenue Service, no later than 60 days
before the day on which the three-year grace period would otherwise expire, an
extension of the three-year grace period, unless the Servicer shall have
delivered to the Trust Administrator and the Trustee an Opinion of Counsel,
addressed to the Trust Administrator, the Trustee, the Certificate Insurer and
the Depositor, to the effect that the holding by REMIC I of such REO Property
subsequent to three years after its acquisition will not result in the
imposition on REMIC I, REMIC II or REMIC III of taxes on "prohibited
transactions" thereof, as defined in Section 860F of the Code, or cause any of
REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC under Federal law
at any time that any Certificates are outstanding. The Servicer shall manage,
conserve, protect and operate each REO Property for the Certificateholders
solely for the purpose of its prompt disposition and sale in a manner which does
not cause such REO Property to fail to qualify as "foreclosure property" within
the meaning of Section 860G(a)(8) of the Code or result in the receipt by REMIC
I, REMIC II or REMIC III of any "income from non-permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code, or any "net income from
foreclosure property" which is subject to taxation under the REMIC Provisions.
(b) The Servicer shall separately account for all funds
collected and received in connection with the operation of any REO Property and
shall establish and maintain, or cause to be established and maintained, with
respect to REO Properties an account held in trust for the Trustee for the
benefit of the Certificateholders and the Certificate Insurer (the "REO
Account"), which shall be an Eligible Account. The Servicer shall be permitted
to allow the Collection Account to serve as the REO Account, subject to separate
ledgers for each REO Property. The Servicer shall be entitled to retain or
withdraw any interest income paid on funds deposited in the REO Account.
(c) The Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection with any REO Property as are consistent with the
manner in which the Servicer manages and operates similar property owned by the
Servicer or any of its Affiliates, all on such terms and for such period as the
Servicer deems to be in the best interests of Certificateholders. In connection
therewith, the Servicer shall deposit, or
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cause to be deposited in the clearing account in which it customarily deposits
payments and collections on mortgage loans in connection with its mortgage loan
servicing activities on a daily basis, and in no event more than one Business
Day after the Servicer's receipt thereof, and shall thereafter deposit in the
REO Account, in no event more than two Business Days after the Servicer's
receipt thereof, all revenues received by it with respect to an REO Property and
shall withdraw therefrom funds necessary for the proper operation, management
and maintenance of such REO Property including, without limitation:
(i) all insurance premiums due and payable in respect
of such REO Property;
(ii) all real estate taxes and assessments in respect of
such REO Property that
may result in the imposition of a lien thereon; and
(iii) all costs and expenses necessary to maintain such
REO Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Servicer shall advance from
its own funds such amount as is necessary for such purposes if, but only if, the
Servicer would make such advances if the Servicer owned the REO Property and if
in the Servicer's judgment, the payment of such amounts will be recoverable from
the rental or sale of the REO Property.
Notwithstanding the foregoing, none of the Servicer, the Trust
Administrator or the Trustee shall:
(i) authorize the Trust Fund to enter into, renew or
extend any New Lease with respect to any REO Property, if the
New Lease by its terms will give rise to any income that does
not constitute Rents from Real Property;
(ii) authorize any amount to be received or accrued
under any New Lease other than amounts that will constitute
Rents from Real Property;
(iii) authorize any construction on any REO Property,
other than the completion of a building or other improvement
thereon, and then only if more than ten percent of the
construction of such building or other improvement was
completed before default on the related Mortgage Loan became
imminent, all within the meaning of Section 856(e)(4)(B) of
the Code; or
(iv) authorize any Person to Directly Operate any REO
Property on any date more than 90 days after its date of
acquisition by the Trust Fund;
unless, in any such case, the Servicer has obtained an Opinion of Counsel,
provided to the Trust Administrator, the Trustee and the Certificate Insurer, to
the effect that such action will not cause such REO Property to fail to qualify
as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code
at any time that it is held by REMIC I, in which case the Servicer may take such
actions as are specified in such Opinion of Counsel.
The Servicer may contract with any Independent Contractor for
the operation and management of any REO Property, provided that:
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(i) the terms and conditions of any such contract shall
not be inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor pay
all costs and expenses incurred in connection with the
operation and management of such REO Property, including those
listed above and remit all related revenues (net of such costs
and expenses) to the Servicer as soon as practicable, but in
no event later than thirty days following the receipt thereof
by such Independent Contractor;
(iii) none of the provisions of this Section 3.23(c)
relating to any such contract or to actions taken through any
such Independent Contractor shall be deemed to relieve the
Servicer of any of its duties and obligations to the Trustee
on behalf of the Certificateholders and the Certificate
Insurer with respect to the operation and management of any
such REO Property; and
(iv) the Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all
duties and obligations in connection with the operation and
management of such REO Property.
The Servicer shall be entitled to enter into any agreement with any Independent
Contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such Independent Contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer shall be solely liable for all fees owed by it to
any such Independent Contractor, irrespective of whether the Servicer's
compensation pursuant to Section 3.18 is sufficient to pay such fees; provided,
however, that to the extent that any payments made by such Independent
Contractor would constitute Servicing Advances if made by the Servicer, such
amounts shall be reimbursable as Servicing Advances made by the Servicer.
(d) In addition to the withdrawals permitted under Section
3.23(c), the Servicer may from time to time make withdrawals from the REO
Account for any REO Property: (i) to pay itself or any Sub-Servicer unpaid
Servicing Fees in respect of the related Mortgage Loan; and (ii) to reimburse
itself or any Sub-Servicer for unreimbursed Servicing Advances and P&I Advances
made in respect of such REO Property or the related Mortgage Loan. On the
Servicer Remittance Date, the Servicer shall withdraw from each REO Account
maintained by it and deposit into the Distribution Account in accordance with
Section 3.10(d)(ii), for distribution on the related Distribution Date in
accordance with Section 4.01, the income from the related REO Property received
during the prior calendar month, net of any withdrawals made pursuant to Section
3.23(c) or this Section 3.23(d).
(e) Subject to the time constraints set forth in Section
3.23(a), each REO Disposition shall be carried out by the Servicer at such price
and upon such terms and conditions as the Servicer shall deem necessary or
advisable, as shall be normal and usual in its Accepted Servicing Practices.
(f) The proceeds from the REO Disposition, net of any amount
required by law to be remitted to the Mortgagor under the related Mortgage Loan
and net of any payment or reimbursement to the Servicer or any Sub-Servicer as
provided above, shall be deposited in the Distribution Account in accordance
with Section 3.10(d)(ii) on the Servicer Remittance Date in the month following
the receipt thereof for distribution on the related Distribution Date in
accordance with Section 4.01. Any REO
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Disposition shall be for cash only (unless changes in the REMIC Provisions made
subsequent to the Startup Day allow a sale for other consideration).
(g) The Servicer shall file information returns with respect
to the receipt of mortgage interest received in a trade or business, reports of
foreclosures and abandonments of any Mortgaged Property and cancellation of
indebtedness income with respect to any Mortgaged Property as required by
Sections 6050H, 6050J and 6050P of the Code, respectively. Such reports shall be
in form and substance sufficient to meet the reporting requirements imposed by
such Sections 6050H, 6050J and 6050P of the Code.
SECTION 3.24. Obligations of the Servicer in Respect of
Prepayment Interest Shortfalls.
The Servicer shall deliver to the Trust Administrator for
deposit into the Distribution Account on or before 5:00 p.m. New York time on
the Servicer Remittance Date from its own funds an amount equal to the lesser of
(i) the aggregate of the Prepayment Interest Shortfalls for the related
Distribution Date resulting from full or partial Principal Prepayments during
the related Prepayment Period and (ii) the aggregate Servicing Fee for the
related Prepayment Period. Any amounts paid by the Servicer pursuant to this
Section 3.24 shall not be reimbursed by REMIC I.
SECTION 3.25. Expense Account.
(a) On behalf of the Trust Fund, the Trust Administrator, as
agent for the Trustee, shall establish and maintain in its name, for the benefit
of the Trustee, the Certificateholders and the Certificate Insurer, the Expense
Account. The Expense Account shall be an Eligible Account, and funds on deposit
therein shall be held separate and apart from, and shall not be commingled with,
any other moneys, including, without limitation, other moneys of the Trust
Administrator held pursuant to this Agreement.
(b) On the Business Day immediately preceding each
Distribution Date, the Trust Administrator shall withdraw from the Distribution
Account and deposit into the Expense Account an amount equal to 1/12 of the
Certificate Insurer Premium Rate on the Certificate Principal Balance of the
Class A Certificates for such Distribution Date.
(c) The Trust Administrator shall make withdrawals from the
Expense Account to pay the Certificate Insurer Premium on each Distribution
Date.
(d) Funds in the Expense Account may be invested in Permitted
Investments in accordance with the provisions set forth in Section 3.12. Any
earnings on such amounts shall be payable to the Master Servicer on each
Distribution Date as additional servicing compensation. The Trust Administrator
shall give notice to the Depositor, the Trustee and the Certificate Insurer of
the location of the Expense Account on the Closing Date and prior to any change
thereof.
(e) Upon termination of the Trust Fund in accordance with
Section 10.01, any amounts remaining in the Expense Account following the
payment of all unpaid Certificate Insurer Premiums shall be released to the
Master Servicer as additional servicing compensation.
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SECTION 3.26. Obligations of the Servicer in Respect of
Mortgage Rates and Monthly Payments.
In the event that a shortfall in any collection on or
liability with respect to any Mortgage Loan results from or is attributable to
adjustments to Mortgage Rates, Monthly Payments or Stated Principal Balances
that were made by the Servicer in a manner not consistent with the terms of the
related Mortgage Note and this Agreement, the Servicer, upon discovery or
receipt of notice thereof, immediately shall deliver to the Trust Administrator
for deposit in the Distribution Account from its own funds the amount of any
such shortfall and shall indemnify and hold harmless the Trust Fund, the Trust
Administrator, the Trustee, the Certificate Insurer, the Depositor and any
successor servicer in respect of any such liability. Such indemnities shall
survive the termination or discharge of this Agreement. Notwithstanding the
foregoing, this Section 3.26 shall not limit the ability of the Servicer to seek
recovery of any such amounts from the related Mortgagor under the terms of the
related Mortgage Note, as permitted by law.
SECTION 3.27. Solicitations.
From and after the Closing Date, the ____________ agrees that
it will not take any action or permit or cause any action to be taken by any of
its agents and Affiliates, or by any independent contractors or independent
mortgage brokerage companies on ____________'s behalf, to personally, by
telephone or mail, solicit the Mortgagor under any Mortgage Loan for the purpose
of refinancing such Mortgage Loan, nor will ____________ purchase any loan to a
Mortgagor secured by a Mortgaged Property, in whole or in part; provided, that
____________ may solicit any Mortgagor for whom ____________ has received a
request for verification of mortgage from an originator of mortgage loan
products similar to the Mortgage Loans that indicates that such Mortgagor
intends to refinance his or her Mortgage Loan, a request for demand for pay-off
or a Mortgagor initiated a written or verbal communication with ____________
indicating a desire to prepay the related Mortgage Loan; provided further, it is
understood and agreed that promotions undertaken by ____________ or any of its
Affiliates which (i) concern optional insurance products or other additional
products or (ii) are directed to the general public at large, including, without
limitation, mass mailings based on commercially acquired mailing lists,
newspaper, radio and television advertisements shall not constitute solicitation
under this Section 3.27.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
(a)(1)(A) On each Distribution Date, the following amounts, in
the following order of priority, shall be distributed by REMIC I to REMIC II on
account of the REMIC I Regular Interests:
(i) to the Holders of REMIC I Regular Interests (other
than REMIC I Regular Interest I-LTP), in an amount equal to
(A) the Uncertificated Interest for such Distribution Date,
plus (B) any amounts in respect thereof remaining unpaid from
previous Distribution Dates. Amounts payable as Uncertificated
Interest in respect of REMIC I Regular Interest I-LT9 shall be
reduced when the REMIC I Overcollateralized Amount is less
than the REMIC I Required Overcollateralized Amount, by the
lesser of (x) the amount of such difference and (y) the
Maximum I-LT9 Uncertificated Interest Deferral Amount; and
(ii) on each Distribution Date, to the Holders of REMIC
I Regular Interests, in an amount equal to the remainder of
the Available Distribution Amount for such Distribution Date
after the distributions made pursuant to clause (i) above,
allocated as follows (except as provided below):
(a) to the Holders of the REMIC I Regular
Interest I-LTP, on the Distribution Date immediately
following the expiration of the latest Prepayment
Charge term as identified on the Mortgage Loan
Schedule and each Distribution Date thereafter until
$____ has been distributed pursuant to this clause;
(b) to the Holders of the REMIC I Regular
Interest I-LT1, _____% of the amount remaining after
application of clause (a), until the Uncertificated
Balance of such REMIC I Regular Interest is reduced
to zero and any remaining amounts to the Holders of
the Class R-I Certificates;
(c) to the Holders of the REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC
I Regular Interest I-LT4, REMIC I Regular Interest
I-LT5, REMIC I Regular Interest I-LT6, REMIC I
Regular Interest I-LT7 and REMIC I Regular Interest
I-LT8, ____% of the amount remaining after
application of clause (a), in the same proportion as
principal payments are allocated to the related
Corresponding Certificate, until the Uncertificated
Balances of such REMIC I Regular Interests are
reduced to zero, and any remaining amounts to the
Holders of the Class R-I Certificates;
(d) to the Holders of the REMIC I Regular
Interest I-LT9, _____% of the amount remaining after
application of clause (a), until the Uncertificated
Balance of such REMIC I Regular Interest is reduced
to zero and any remaining amounts to the Holders of
the Class R-I Certificates;
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provided, however, that _____% and ____% of any principal payments that are
attributable to a Overcollateralization Reduction Amount shall be allocated to
Holders of the REMIC I Regular Interest I- LT1 and REMIC I Regular Interest
I-LT9, respectively.
(B) On each Distribution Date, the following amounts shall be
distributed by REMIC II to REMIC III on account of the REMIC II Regular
Interests:
(i) any amounts paid as either Uncertificated Interest
paid or accrued to the REMIC I Regular Interests (other than
REMIC I Regular Interest I-LTP) shall be deemed to have been
paid to the related Uncertificated Corresponding Component in
REMIC II in accordance with the REMIC II Remittance Rates and
any amounts deferred on REMIC I Regular Interest I-LT9
pursuant to Section 4.01(A)(1)(A) shall be deemed to have been
deferred with respect to REMIC II Regular Interest II-LT9; and
(ii) any amounts paid as principal on the REMIC I
Regular Interests shall be deemed to have been paid to the
related Uncertificated Corresponding Component in REMIC II in
accordance with the same priorities and conditions.
(2) On each Distribution Date, the Trust Administrator shall
withdraw from the Distribution Account an amount equal to the Available
Distribution Amount (other than any amount in the Distribution Account that was
transferred from the Policy Payments Account to the Distribution Account
pursuant to Section 9.04) and distribute to the Certificateholders the following
amounts, in the following order of priority:
(i) (a) to the Holders of the Class A Certificates, in
an amount (allocable among such Certificates PRO RATA in
accordance with the respective amounts payable as to each
pursuant to this clause (i)) equal to the aggregate of the
Interest Distribution Amounts for such Distribution Date for
such Certificates;
(ii) to the Holders of the Class A Certificates, in an
amount equal to the Principal Distribution Amount (except for
any portion thereof consisting of any Overcollateralization
Increase Amount and any amount payable pursuant to clause
(iii) below), in the priorities and amounts set forth in
Section 4.01(a)(3) below, until the Certificate Principal
Balances of such Certificates have been reduced to zero;
(iii) to the Holders of the Class A Certificates in the
priorities and amounts set forth in Section 4.01(a)(3) below,
payable from Net Monthly Excess Cashflow (exclusive of any
Overcollateralization Reduction Amount), in an amount equal to
(a) the principal portion of any Realized Losses incurred or
deemed to have been incurred on the Mortgage Loans, applied to
reduce the Certificate Principal Balances of such Certificates
until the aggregate Certificate Principal Balance of such
Certificates is reduced to zero, plus (b) the principal
portion of any Realized Losses allocated to such Certificates
on previous Distribution Dates but not paid under the Policy
due to a Certificate Insurer Default and not previously paid
pursuant to this clause (iii)(b);
(iv) to the Certificate Insurer, payable from Net
Monthly Excess Cashflow, to reimburse the Certificate Insurer
for claims under the Policy, to the extent of Cumulative
Insurance Payments;
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(v) to the Holders of the Class A Certificates in the
priorities and amounts set forth in Section 4.01(a)(3) below,
payable from Net Monthly Excess Cashflow, in an amount equal
to the portion of the Principal Distribution Amount consisting
of any Overcollateralization Increase Amount, applied to
reduce the Certificate Principal Balances of such
Certificates, until the aggregate Certificate Principal
Balances of such Certificates is reduced to zero;
(vi) to the Holders of the Class A Certificates, payable
from Net Monthly Excess Cashflow, in an amount equal to any
Relief Act Shortfalls that were allocated pursuant to Section
1.02;
(vii) to the Certificate Insurer, payable from Net
Monthly Excess Cashflow, any amounts remaining due to the
Insurer under the terms of the Insurance Agreement (including
any Premium Supplement);
(viii) to the Holders of the Class CE Certificates,
payable from Net Monthly Excess Cashflow, the Interest
Distribution Amount and any Overcollateralization
Reduction Amount for such Distribution Date; and
(ix) to the Holders of the Class R-III Certificates, any
remaining amounts; provided that if such Distribution Date is
the Distribution Date immediately following the expiration of
the latest Prepayment Charge term as identified on the
Mortgage Loan Schedule or any Distribution Date thereafter,
then any such remaining amounts will be distributed FIRST, to
the Holders of the Class P Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
SECOND, to the Holders of the Class R-III Certificates.
(3) On each Distribution Date, the aggregate distributions
made on such date in respect of the Class A Certificates pursuant to Section
4.01(a)(2)(ii), (a)(2)(iii) or (a)(2)(v) above shall be applied among the
various Classes thereof in the following order of priority:
FIRST, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Principal Distribution Amount,
until the Certificate Balance of such Class has been reduced
to zero;
SECOND, to the holders of the Class A-1 Certificates, until
the Certificate Principal Balance of such Class has been
reduced to zero;
THIRD, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero;
FOURTH, to the holders of the Class A-3 Certificates, until
the Certificate Principal Balance of such Class has been
reduced to zero;
FIFTH, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero;
SIXTH, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero;
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SEVENTH, to the holders of the Class A-6 Certificates, until
the Certificate Principal Balance of such Class has been
reduced to zero; and
EIGHTH, to the holders of the Lockout Certificates until the
Certificate Principal Balance of such Class has been reduced
to zero.
Notwithstanding the foregoing priorities, if a Certificate Insurer
Default exists, the sequential nature of distributions of principal
among the Class A Certificates will be disregarded and distributions
allocable to principal will be paid on each succeeding Distribution
Date to holders of the Class A Certificates on a PRO RATA basis, based
on the Certificate Principal Balances thereof.
(b) On each Distribution Date, the Trust Administrator shall
withdraw any amounts then on deposit in the Distribution Account that represent
Prepayment Charges collected by either Servicer in connection with the Principal
Prepayment of any of the Mortgage Loans or any Servicer Prepayment Charge
Payment Amount, and shall distribute such amounts to the Holders of the Class P
Certificates. Such distributions shall not be applied to reduce the Certificate
Principal Balance of the Class P Certificates.
(c) In addition to making the distributions required pursuant
to Section 4.01(a)(2), on each Distribution Date for which there exists a
Deficiency Amount, the Trust Administrator shall withdraw from the Distribution
Account any amount therein that was transferred from the Policy Payments Account
to the Distribution Account pursuant to Section 9.04 and distribute to the
Holders of the Class A Certificates (i) an amount equal to any amount required
to be paid to such Class pursuant to Section 4.01(a)(2)(i) for such Distribution
Date remaining unpaid after giving effect to all distributions made pursuant to
Section 4.01(a)(2) for such Distribution Date, (ii) an amount equal to the
principal portion of any Realized Losses allocated to such Class on such
Distribution Date after giving effect to all distributions made pursuant to
Section 4.01(a)(2) for such Distribution Date and (iii) without duplication, any
other amount constituting a Deficiency Amount.
(c) Each Holder of a Class A Certificate, by its acceptance of
such Certificate, hereby agrees that, in the event any distribution is made to
any Holder of a Class A Certificate from amounts paid under the Policy, (i) the
Certificate Insurer shall be subrogated in the manner herein provided to the
rights of the Holder of such Class A Certificate to receive from amounts on
deposit in the Distribution Account the distributions allocable to principal and
interest that would have been distributable to such Holder if no such
distribution to such Holder had been made from amounts paid under the Policy;
and (ii) in addition to the rights of the Holders of the Class A Certificates
that the Certificate Insurer may exercise in accordance with the provisions of
Section 9.01, the Certificate Insurer may exercise any option, vote, right,
power or the like with respect to each Class A Certificate for which Cumulative
Insurance Payments are outstanding.
(d) All distributions made with respect to each Class of
Certificates on each Distribution Date shall be allocated PRO RATA among the
outstanding Certificates in such Class based on their respective Percentage
Interests. Payments in respect of each Class of Certificates on each
Distribution Date will be made to the Holders of the respective Class of record
on the related Record Date (except as otherwise provided in Section 4.01(f) or
Section 10.01 respecting the final distribution on such Class), based on the
aggregate Percentage Interest represented by their respective Certificates, and
shall be made by wire transfer of immediately available funds to the account of
any such Holder at a bank or other entity having appropriate facilities
therefor, if such Holder shall have so notified the Trust Administrator in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date
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and is the registered owner of Certificates having an initial aggregate
Certificate Principal Balance that is in excess of the lesser of (i) $5,000,000
or (ii) two-thirds of the initial Certificate Principal Balance of such Class of
Certificates, or otherwise by check mailed by first class mail to the address of
such Holder appearing in the Certificate Register. The final distribution on
each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution. Payments to the Certificate Insurer on any Distribution Date will
be made by wire transfer of immediately available funds to the account
designated by the Certificate Insurer under the Premium Letter (as defined in
the Insurance Agreement).
Each distribution with respect to a Book-Entry Certificate
shall be paid to the Depository, as Holder thereof, and the Depository shall be
responsible for crediting the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trust Administrator,
the Trustee, the Depositor or the Servicers shall have any responsibility
therefor except as otherwise provided by this Agreement or applicable law.
(e) The rights of the Certificateholders to receive
distributions in respect of the Certificates, and all interests of the
Certificateholders in such distributions, shall be as set forth in this
Agreement. None of the Holders of any Class of Certificates, the Trust
Administrator, the Trustee or the Servicers shall in any way be responsible or
liable to the Holders of any other Class of Certificates in
respect of amounts properly previously distributed on the Certificates.
(f) Except as otherwise provided in Section 10.01, whenever
the Trust Administrator expects that the final distribution with respect to any
Class of Certificates will be made on the next Distribution Date, the Trust
Administrator shall, no later than three (3) days before the related
Distribution Date, mail to each Holder on such date of such Class of
Certificates and the Certificate Insurer a notice to the effect that:
(i) the Trust Administrator expects that the final distribution
with respect to such Class of Certificates will be made on such
Distribution Date but only upon presentation and surrender of such
Certificates at the office of the Trust Administrator therein
specified, and
(ii) no interest shall accrue on such Certificates from and after
the end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust by
the Trust Administrator and credited to the account of the appropriate
non-tendering Holder or Holders. If any Certificates as to which notice has been
given pursuant to this Section 4.01(f) shall not have been surrendered for
cancellation within six months after the time specified in such notice, the
Trust Administrator shall mail a second notice to the remaining non-tendering
Certificateholders to surrender their Certificates for cancellation in order to
receive the final distribution with respect thereto. If within one year after
the second notice all such Certificates shall not have been surrendered for
cancellation, the Trust Administrator shall, directly or through an agent, (i)
mail a final notice to the remaining non-tendering Certificateholders concerning
surrender of their Certificates and (ii) pay to the Certificate Insurer any
amount of such funds which were paid by the Certificate Insurer under the Policy
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but shall continue to hold any remaining funds for the benefit of non-tendering
Certificateholders, and all liability of the Certificate Insurer with respect to
such funds shall thereupon cease. The costs and expenses of maintaining the
funds in trust and of contacting such Certificateholders shall be paid out of
the assets remaining in such trust fund. If within one year after the final
notice any such Certificates shall not have been surrendered for cancellation,
the Trust Administrator shall pay to Salomon Smith Barney Inc. all such amounts,
and all rights of non-tendering Certificateholders in or to such amounts shall
thereupon cease. No interest shall accrue or be payable to any Certificateholder
on any amount held in trust by the Trust Administrator as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 4.01(f). Any such amounts held in trust
by the Trust Administrator shall be held in an Eligible Account and the Trust
Administrator may direct any depository institution maintaining such account to
invest the funds in one or more Permitted Investments. All income and gain
realized from the investment of funds deposited in such accounts held in trust
by the Trust Administrator shall be for the benefit of the Trust Administrator;
provided, however, that the Trust Administrator shall deposit in such account
the amount of any loss of principal incurred in respect of any such Permitted
Investment made with funds in such accounts immediately upon the realization of
such loss.
(g) Notwithstanding anything to the contrary herein, (i) in no
event shall the Certificate Principal Balance of a Class A Certificate be
reduced more than once in respect of any particular amount both (a) allocated to
such Certificate in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed to the Holder of such Certificate in reduction of the Certificate
Principal Balance thereof pursuant to this Section 4.01 from Net Monthly Excess
Cashflow or from amounts paid under the Policy and (ii) in no event shall the
Uncertificated Balance of a REMIC I Regular Interest be reduced more than once
in respect of any particular amount both (a) allocated to such REMIC I Regular
Interest in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed on such REMIC I Regular Interest in reduction of the Uncertificated
Balance thereof pursuant to this Section 4.01.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date, the Trust Administrator shall
prepare and forward by mail to each Holder of the Regular Certificates, a
statement as to the distributions made on such Distribution Date setting forth:
(i) the amount of the distribution made on such
Distribution Date to the Holders of the Certificates of each
Class allocable to principal, and the amount of the
distribution made on such Distribution Date to the Holders of
the Class P Certificates allocable to Prepayment Charges;
(ii) the amount of the distribution made on such
Distribution Date to the Holders of the Certificates of each
Class allocable to interest;
(iii) the aggregate Servicing Fee received by each
Servicer and the aggregate Master Servicing Fee received by
the Master Servicer during the related Due Period and such
other customary information as the Trust Administrator deems
necessary or desirable, or which a Certificateholder
reasonably requests, to enable Certificateholders to prepare
their tax returns;
(iv) the Guaranteed Distribution for such Distribution
Date and the respective portions thereof allocable to
principal and interest;
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(v) the amount of any Insurance Payment made to the
Class A Certificates on such Distribution Date, the amount of
any reimbursement payment made to the Certificate Insurer on
such Distribution Date pursuant to Section 4.01(a)(2)(iv) and
the amount of Cumulative Insurance Payments after giving
effect to any such Insurance Payment to the Class A
Certificateholders or any such reimbursement payment to the
Certificate Insurer;
(vi) the aggregate amount of P&I Advances for such
Distribution Date;
(vii) the aggregate Stated Principal Balance of the
Mortgage Loans and any REO Properties as of the close of
business on such Distribution Date;
(viii) the number, aggregate principal balance, weighted
average remaining term to maturity and weighted average
Mortgage Rate of the Mortgage Loans as of the related
Due Date;
(ix) the number and aggregate unpaid principal balance
of Mortgage Loans (a) delinquent 30 to 59 days, (b) delinquent
60 to 89 days, (c) delinquent 90 or more days, in each case,
as of the last day of the preceding calendar month, (d) as to
which foreclosure proceedings have been commenced and (e) with
respect to which the related Mortgagor has filed for
protection under applicable bankruptcy laws, with respect to
whom bankruptcy proceedings are pending or with respect to
whom bankruptcy protection is in force;
(x) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number
of such Mortgage Loan, the unpaid principal balance and the
Stated Principal Balance of such Mortgage Loan as of the date
it became an REO Property;
(xi) the book value of any REO Property as of the close
of business on the last Business Day of the calendar month
preceding the Distribution Date;
(xii) the aggregate amount of Principal Prepayments made
during the related Prepayment Period;
(xiii) the aggregate amount of Realized Losses incurred
during the related Prepayment Period (or, in the case of
Bankruptcy Losses allocable to interest, during the related
Due Period), separately identifying whether such Realized
Losses constituted Bankruptcy Losses and the aggregate amount
of Realized Losses incurred since the Closing Date;
(xiv) the aggregate amount of extraordinary Trust Fund
expenses withdrawn from the Collection Account or the
Distribution Account for such Distribution Date;
(xv) the aggregate Certificate Principal Balance of each
Class of Certificates, after giving effect to the
distributions, and allocations of Realized Losses, made on
such Distribution Date, separately identifying any reduction
thereof due to allocations of Realized Losses;
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(xvi) the Certificate Factor for each such Class of
Certificates applicable to such Distribution Date;
(xvii) the Interest Distribution Amounts in respect of
each Class of Class A Certificates and the Class CE
Certificates for such Distribution Date and, in the case of
each Class of Class A Certificates, the portion thereof, if
any, paid under the Policy or (in the event of a Deficiency
Event) remaining unpaid following the distributions made in
respect of the Class A Certificates on such Distribution Date
and, in the case of the Class A Certificates or the Class CE
Certificates, separately identifying any reduction thereof due
to allocations of Realized Losses, Prepayment Interest
Shortfalls and Relief Act Interest Shortfalls;
(xviii) the aggregate amount of any Prepayment Interest
Shortfall for such Distribution Date, to the extent not
covered by payments by the Servicers pursuant to Section 3.24;
(xix) the aggregate amount of Relief Act Interest
Shortfalls for such Distribution
Date;
(xx) the Required Overcollateralized Amount for such
Distribution Date;
(xxi) the Overcollateralization Increase Amount, if any,
for such Distribution Date;
(xxii) the Overcollateralization Reduction Amount, if
any, for such Distribution Date; and
(xxiii) the Pass-Through Rate applicable to the Class CE
Certificates for such Distribution Date.
In the case of information furnished pursuant to subclauses
(i) through (iii) above, the amounts shall be expressed as a dollar amount per
Single Certificate of the relevant Class.
Within a reasonable period of time after the end of each
calendar year, the Trust Administrator shall furnish to each Person who at any
time during the calendar year was a Holder of a Regular Certificate a statement
containing the information set forth in subclauses (i) through (iii) above,
aggregated for such calendar year or applicable portion thereof during which
such person was a Certificateholder. Such obligation of the Trust Administrator
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trust Administrator pursuant to
any requirements of the Code as from time to time are in force.
On each Distribution Date, the Trust Administrator shall
forward to the Depositor, the Trustee, to each Holder of a Residual Certificate,
the Certificate Insurer and to the Servicers, a copy of the reports forwarded to
the Regular Certificateholders on such Distribution Date and a statement setting
forth the amounts, if any, actually distributed with respect to the Residual
Certificates, respectively, on
such Distribution Date.
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Within a reasonable period of time after the end of each
calendar year, the Trust Administrator shall furnish to each Person who at any
time during the calendar year was a Holder of a Residual Certificate a statement
setting forth the amount, if any, actually distributed with respect to the
Residual Certificates, as appropriate, aggregated for such calendar year or
applicable portion thereof during which such Person was a Certificateholder.
The Trust Administrator shall, upon request, furnish to each
Certificateholder, during the term of this Agreement, such periodic, special, or
other reports or information, whether or not provided for herein, as shall be
reasonable with respect to the Certificateholder, or otherwise with respect to
the purposes of this Agreement, all such reports or information to be provided
at the expense of the Certificateholder in accordance with such reasonable and
explicit instructions and directions as the Certificateholder may provide. For
purposes of this Section 4.02, the Trust Administrator's duties are limited to
the extent that the Trust Administrator receives timely reports as required from
the Servicers.
On each Distribution Date the Trust Administrator shall
provide Bloomberg Financial Markets, L.P. ("Bloomberg") CUSIP level factors for
each class of Certificates as of such Distribution Date, using a format and
media mutually acceptable to the Trust Administrator and Bloomberg.
SECTION 4.03. Remittance Reports; P&I Advances.
(a) On the Business Day following each Determination Date,
each Servicer shall deliver to the Trust Administrator, the Trustee and the
Certificate Insurer by telecopy (or by such other means as such Servicer, the
Trust Administrator, the Trustee or the Certificate Insurer, as the case may be,
may agree from time to time) a Remittance Report with respect to the related
Distribution Date. On the same date, the related Servicer shall forward to the
Trust Administrator by overnight mail or internet mail an electronic file
containing the information set forth in such Remittance Report with respect to
the related Distribution Date. The Trust Administrator hereby agrees to forward
a copy of the Remittance Report received from Option One in electronic format to
the Master Servicer by the Business Day following its receipt thereof. Such
Remittance Reports will include (i) the amount of P&I Advances to be made by the
related Servicer in respect of the related Distribution Date, the aggregate
amount of P&I Advances outstanding after giving effect to such P&I Advances, and
the aggregate amount of Nonrecoverable P&I Advances in respect of such
Distribution Date and (ii) such other information with respect to the Mortgage
Loans as the Trust Administrator may reasonably require to perform the
calculations necessary to make the distributions contemplated by Section 4.01
and to prepare the statements to Certificateholders contemplated by Section
4.02. Not later than the close of business on the third Business Day prior to
the Distribution Date, the Trust Administrator shall deliver or cause to be
delivered to the Certificate Insurer, in addition to the information provided on
the Remittance Report, a report setting forth (i) the Guaranteed Distribution
for such Distribution Date, separately identifying the portions thereof
allocable to principal and interest; (ii) the Available Distribution Amount for
such Distribution Date; (iii) whether the Available Distribution Amount expected
to be on deposit in the Distribution Account on such Distribution Date will be
sufficient to cover the Guaranteed Distribution and, if not, the amount of the
shortfall; (iv) with respect to any reimbursement to be made to the Certificate
Insurer on such Distribution Date pursuant to Section 4.01(a)(2)(iv), the
amount, if any, allocable to principal and the amount allocable to interest; and
(v) Cumulative Insurance Payments after giving effect to the distributions to be
made on such Distribution Date. The Trust Administrator shall not be responsible
(except with regard to any information regarding the Prepayment Charges to the
extent set forth below) to recompute, recalculate or verify any information
provided to it by the Servicers. Notwithstanding the foregoing, in connection
with any Principal Prepayment on any Mortgage Loan listed on Schedule 2 hereto,
the Trust Administrator shall verify that the related Prepayment Charge was
delivered to the Trust Administrator for deposit in the
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Distribution Account in the amount set forth on such Schedule 2 or that such
Prepayment Charge was waived in accordance with the terms hereof.
(b) The amount of P&I Advances to be made by each Servicer for
any Distribution Date shall equal, subject to Section 4.03(d), the sum of (i)
the aggregate amount of Monthly Payments (with each interest portion thereof net
of the related Servicing Fee), due on the related Due Date in respect of the
Mortgage Loans (other than with respect to any Balloon Loan with a delinquent
Balloon Payment as described in clause (iii) below), which Monthly Payments were
delinquent as of the close of business on the related Determination Date, plus
(ii) with respect to each REO Property (other than with respect to any REO
Property relating to a Balloon Loan with a Delinquent Balloon Payment as
described in clause (iv) below), which REO Property was acquired during or prior
to the related Prepayment Period and as to which REO Property an REO Disposition
did not occur during the related Prepayment Period, an amount equal to the
excess, if any, of the REO Imputed Interest on such REO Property for the most
recently ended calendar month, over the net income from such REO Property
transferred to the Distribution Account pursuant to Section 3.23 for
distribution on such Distribution Date, plus (iii) with respect to each Balloon
Loan with a delinquent Balloon Payment, an amount equal to the assumed monthly
principal and interest payment (with each interest portion thereof net of the
related Servicing Fee) that would have been due on the related Due Date based on
the original principal amortization schedule for such Balloon Loan assuming such
Mortgage Loan was not a Balloon Loan, plus (iv) with respect to each REO
Property relating to a Balloon Loan with a delinquent Balloon Payment, which REO
Property was acquired during or prior to the related Prepayment Period and as to
which REO Property an REO Disposition did not occur during the related
Prepayment Period, an amount equal to the excess, if any, of the assumed monthly
principal and interest payment (with each interest portion thereof net of the
related Servicing Fee) that would have been due on the related Due Date based on
the original principal amortization schedule for the related Balloon Loan
assuming such Mortgage Loan was not a Balloon Loan, over the net income from
such REO Property transferred to the Distribution Account pursuant to Section
3.23 for distribution on such Distribution Date.
On or before 5:00 p.m. New York time on the Servicer
Remittance Date, each Servicer shall remit in immediately available funds to the
Trust Administrator for deposit in the Distribution Account an amount equal to
the aggregate amount of P&I Advances, if any, to be made in respect of the
Mortgage Loans and REO Properties for the related Distribution Date either (i)
from its own funds or (ii) from the Collection Account, to the extent of funds
held therein for future distribution (in which case it will cause to be made an
appropriate entry in the records of Collection Account that amounts held for
future distribution have been, as permitted by this Section 4.03, used by such
Servicer in discharge of any such P&I Advance) or (iii) in the form of any
combination of (i) and (ii) aggregating the total amount of P&I Advances to be
made by such Servicer with respect to the Mortgage Loans and REO Properties. Any
amounts held for future distribution and so used shall be appropriately
reflected in the related Servicer's records and replaced by the such Servicer by
deposit in the Collection Account on or before any future Servicer Remittance
Date to the extent that the Available Distribution Amount for the related
Distribution Date (determined without regard to P&I Advances to be made on the
Servicer Remittance Date) shall be less than the total amount that would be
distributed to the Classes of Certificateholders pursuant to Section 4.01 on
such Distribution Date if such amounts held for future distributions had not
been so used to make P&I Advances. The Trust Administrator will provide notice
to the Trustee, the applicable Servicer and the Certificate Insurer by telecopy
by the close of business on the Business Day immediately following the Servicer
Remittance Date in the event that the amount remitted by such Servicer to the
Trust Administrator on such date is less than the P&I Advances required to be
made by such Servicer for the related Distribution Date.
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(c) The obligation of each Servicer to make such P&I Advances
is mandatory, notwithstanding any other provision of this Agreement but subject
to (d) below, and, with respect to any Mortgage Loan or REO Property, shall
continue until a Final Recovery Determination in connection therewith or the
removal thereof from the Trust Fund pursuant to any applicable provision of this
Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no P&I
Advance or Servicing Advance shall be required to be made hereunder by either
Servicer if such P&I Advance or Servicing Advance would, if made, constitute a
Nonrecoverable P&I Advance or Nonrecoverable Servicing Advance, respectively.
The determination by either Servicer that it has made a Nonrecoverable P&I
Advance or a Nonrecoverable Servicing Advance or that any proposed P&I Advance
or Servicing Advance, if made, would constitute a Nonrecoverable P&I Advance or
Nonrecoverable Servicing Advance, respectively, shall be evidenced by an
Officers' Certificate of such Servicer delivered to the Depositor, the Trust
Administrator, the Trustee and the Certificate Insurer.
(e) If, at the close of business on the third Business Day
prior to any Distribution Date, the funds on deposit in the Distribution Account
are less than the Guaranteed Distribution for such Distribution Date, the Trust
Administrator shall give notice by telephone or telecopy of the amount of such
deficiency, confirmed in writing in the form set forth as Exhibit A to the
Endorsement of the Policy, to the Certificate Insurer and the Fiscal Agent (as
defined in the Policy), if any, at or before 10:00 a.m., New York time, on the
second Business Day prior to such Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
(a) Prior to each Determination Date, each Servicer shall
determine as to each Mortgage Loan and REO Property: (i) the total amount of
Realized Losses, if any, incurred in connection with any Final Recovery
Determinations made during the related Prepayment Period; (ii) whether and the
extent to which such Realized Losses constituted Bankruptcy Losses; and (iii)
the respective portions of such Realized Losses allocable to interest and
allocable to principal. Prior to each Determination Date, each Servicer shall
also determine as to each Mortgage Loan: (i) the total amount of Realized
Losses, if any, incurred in connection with any Deficient Valuations made during
the related Prepayment Period; and (ii) the total amount of Realized Losses, if
any, incurred in connection with Debt Service Reductions in respect of Monthly
Payments due during the related Due Period. The information described in the two
preceding sentences that is to be supplied by the Servicers shall be evidenced
by an Officers' Certificate delivered to the Trust Administrator, the Trustee
and the Certificate Insurer by the related Servicer prior to the Determination
Date immediately following the end of (i) in the case of Bankruptcy Losses
allocable to interest, the Due Period during which any such Realized Loss was
incurred, and (ii) in the case of all other Realized Losses, the Prepayment
Period during which any such Realized Loss was incurred.
(b) All Realized Losses on the Mortgage Loans allocated to any
REMIC II Regular Interest pursuant to Section 4.04(c) on the Mortgage Loans
shall be allocated by the Trust Administrator on each Distribution Date as
follows: first, to Net Monthly Excess Cashflow; second, to the Class CE
Certificates, until the Certificate Principal Balance thereof has been reduced
to zero; and third, among the Class A Certificates on a PRO RATA basis. All
Realized Losses to be allocated to the Certificate Principal Balances of all
Classes on any Distribution Date shall be so allocated after the actual
distributions to be made on such date as provided above. All references above to
the Certificate Principal Balance of any Class of Certificates shall be to the
Certificate Principal Balance of such Class immediately prior to the relevant
Distribution Date, before reduction thereof by any Realized Losses, in each case
to be allocated to such Class of Certificates, on such Distribution Date. No
allocations of Realized Losses pursuant to this
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Section 4.04 shall affect any liability of the Certificate Insurer with respect
to such amounts under the Policy.
Any allocation of Realized Losses to a Class A Certificate on
any Distribution Date shall be made by reducing the Certificate Principal
Balance thereof by the amount so allocated; any allocation of Realized Losses to
a Class CE Certificate shall be made by reducing the amount otherwise payable in
respect thereof pursuant to Section 4.01(a)(2)(viii). No allocations of any
Realized Losses shall be made to the Certificate Principal Balance of the Class
P Certificates.
As used herein, an allocation of a Realized Loss on a "PRO
RATA basis" among two or more specified Classes of Certificates means an
allocation on a PRO RATA basis, among the various Classes so specified, to each
such Class of Certificates on the basis of their then outstanding Certificate
Principal Balances prior to giving effect to distributions to be made on such
Distribution Date. All Realized Losses and all other losses allocated to a Class
of Certificates hereunder will be allocated among the Certificates of such Class
in proportion to the Percentage Interests evidenced thereby.
(c) All Realized Losses on the Mortgage Loans shall be
allocated by the Trust Administrator on each Distribution Date to the following
REMIC I Regular Interests in the specified percentages, as follows: first, to
Uncertificated Interest payable to the REMIC I Regular Interest I-LT1 and REMIC
I Regular Interest I-LT9 up to an aggregate amount equal to the REMIC I Interest
Loss Allocation Amount, 98% and 2%, respectively; second, to the Uncertificated
Balances of the REMIC I Regular Interest I-LT1 and REMIC I Regular Interest
I-LT9 up to an aggregate amount equal to the REMIC I Principal Loss Allocation
Amount, 98% and 2%, respectively; third, 98% to the Uncertificated Balance of
REMIC I Regular Interest I-LT1, 1% to the Uncertificated Balances of REMIC I
Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest
I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6, REMIC I
Regular Interest I-LT7 and REMIC I Regular Interest I-LT8 on a PRO RATA basis
and 1% to REMIC I Regular Interest I-LT9.
(d) All Realized Losses on the REMIC II Regular Interests
shall be allocated by the Trust Administrator on each Distribution Date among
the REMIC II Regular Interests in the proportion that Realized Losses are
allocated to the related Uncertificated Corresponding Component; Realized Losses
allocated to principal on REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5,
REMIC I Regular Interest I-LT6, REMIC I Regular Interest I-LT7 and REMIC I
Regular Interest I-LT8 shall be allocated to REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II
Regular Interest II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular
Interest II-LT7 and REMIC II Regular Interest II-LT8, respectively.
As used herein, an allocation of a Realized Loss on a "PRO
RATA basis" among the REMIC I Regular Interests (other than REMIC I Regular
Interest I-LTP) means an allocation on a PRO RATA basis among the REMIC I
Regular Interests (other than REMIC I Regular Interest I-LTP) on the basis of
their then outstanding Uncertificated Balances, in each case prior to giving
effect to distributions to be made on such Distribution Date.
SECTION 4.05. Compliance with Withholding Requirements .
Notwithstanding any other provision of this Agreement, the
Trust Administrator shall comply with all federal withholding requirements
respecting payments to Certificateholders of interest or original issue discount
that the Trust Administrator reasonably believes are applicable under the Code.
The
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consent of Certificateholders shall not be required for such withholding. In the
event the Trust Administrator does withhold any amount from interest or original
issue discount payments or advances thereof to any Certificateholder pursuant to
federal withholding requirements, the Trust Administrator shall
indicate the amount withheld to such Certificateholders.
SECTION 4.06. Exchange Commission; Additional Information.
Within 15 days after each Distribution Date, the Trust
Administrator shall file with the Commission via the Electronic Data Gathering
and Retrieval System, a Form 8-K with a copy of the statement to
Certificateholders for such Distribution Date as an exhibit thereto. Prior to
_____________, the Trust Administrator shall file a Form 15 Suspension
Notification with respect to the Trust Fund, if applicable. Prior to
______________, the Trust Administrator shall file a Form 10-K, substantially in
the form attached hereto as Exhibit H, with respect to the Trust Fund. The
Depositor hereby grants to the Trust Administrator a limited power of attorney
to execute and file each such document on behalf of the Depositor. Such power of
attorney shall continue until the earlier of (i) receipt by the Trust
Administrator from the Depositor of written termination of such power of
attorney and (ii) the termination of the Trust Fund. Upon request, the Trust
Administrator shall deliver to the Depositor a copy of any Form 8-K or Form 10-K
filed pursuant to this Section 4.06.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates in the aggregate will represent the
entire beneficial ownership interest in the Mortgage Loans and all other assets
included in REMIC I.
The Certificates will be substantially in the forms annexed
hereto as Exhibits A-1 through A-12. The Certificates of each Class will be
issuable in registered form only, in denominations of authorized Percentage
Interests as described in the definition thereof. Each Certificate will share
ratably in all rights of the related Class.
Upon original issue, the Certificates shall be executed by the
Trustee, and authenticated and delivered by the Trustee or the Trust
Administrator to or upon the order of the Depositor. The Certificates shall be
executed by manual or facsimile signature on behalf of the Trustee or the Trust
Administrator by an authorized signatory. Certificates bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Trustee or the Trust Administrator shall bind the Trustee or the Trust
Administrator, as applicable, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificates. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form provided herein
executed by the Trustee or the Trust Administrator by manual signature, and such
certificate of authentication shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
(b) The Class A Certificates shall initially be issued as one
or more Certificates held by the Book-Entry Custodian or, if appointed to hold
such Certificates as provided below, the Depository and registered in the name
of the Depository or its nominee and, except as provided below, registration of
such Certificates may not be transferred by the Trust Administrator except to
another Depository that agrees to hold such Certificates for the respective
Certificate Owners with Ownership Interests therein. The Certificate Owners
shall hold their respective Ownership Interests in and to such Certificates
through the book-entry facilities of the Depository and, except as provided
below, shall not be entitled to definitive, fully registered Certificates
("Definitive Certificates") in respect of such Ownership Interests. All
transfers by Certificate Owners of their respective Ownership Interests in the
Book-Entry Certificates shall be made in accordance with the procedures
established by the Depository Participant or brokerage firm representing such
Certificate Owner. Each Depository Participant shall only transfer the Ownership
Interests in the Book-Entry Certificates of Certificate Owners it represents or
of brokerage firms for which it acts as agent in accordance with the
Depository's normal procedures. The Trust Administrator is hereby initially
appointed as the Book-Entry Custodian and hereby agrees to act as such in
accordance herewith and in accordance with the agreement that it has with the
Depository authorizing it to act as such. The Book- Entry Custodian may, and, if
it is no longer qualified to act as such, the Book-Entry Custodian shall,
appoint, by a written instrument delivered to the Depositor, each Servicer, the
Certificate Insurer, the Trustee and, if the Trust Administrator is not the
Book-Entry Custodian, the Trust Administrator, any other transfer agent
(including the Depository or any successor Depository) to act as Book-Entry
Custodian under such conditions as the predecessor Book-Entry Custodian and the
Depository or any successor
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Depository may prescribe, provided that the predecessor Book-Entry Custodian
shall not be relieved of any of its duties or responsibilities by reason of any
such appointment of other than the Depository. If the Trust Administrator
resigns or is removed in accordance with the terms hereof, the Trustee, the
successor trust administrator or, if it so elects, the Depository shall
immediately succeed to its predecessor's duties as Book-Entry Custodian. The
Depositor shall have the right to inspect, and to obtain copies of, any
Certificates held as Book-Entry Certificates by the Book-Entry Custodian.
The Trust Administrator, the Trustee, each Servicer, the
Certificate Insurer and the Depositor may for all purposes (including the making
of payments due on the Book-Entry Certificates) deal with the Depository as the
authorized representative of the Certificate Owners with respect to the Book-
Entry Certificates for the purposes of exercising the rights of
Certificateholders hereunder. The rights of Certificate Owners with respect to
the Book-Entry Certificates shall be limited to those established by law and
agreements between such Certificate Owners and the Depository Participants and
brokerage firms representing such Certificate Owners. Multiple requests and
directions from, and votes of, the Depository as Holder of the Book-Entry
Certificates with respect to any particular matter shall not be deemed
inconsistent if they are made with respect to different Certificate Owners. The
Trust Administrator may establish a reasonable record date in connection with
solicitations of consents from or voting by Certificateholders and shall give
notice to the Depository of such record date.
If (i)(A) the Depositor advises the Trust Administrator in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (B) the Depositor is unable to locate a
qualified successor, (ii) the Depositor at its option advises the Trust
Administrator in writing that it elects to terminate the book-entry system
through the Depository or (iii) after the occurrence of a Servicer Event of
Default, Certificate Owners representing in the aggregate not less than 51% of
the Ownership Interests of the Book-Entry Certificates advise the Trust
Administrator through the Depository, in writing, that the continuation of a
book-entry system through the Depository is no longer in the best interests of
the Certificate Owners, the Trust Administrator shall notify all Certificate
Owners, through the Depository, of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Trust Administrator of the Book-Entry Certificates
by the Book-Entry Custodian or the Depository, as applicable, accompanied by
registration instructions from the Depository for registration of transfer, the
Trust Administrator shall issue the Definitive Certificates. Such Definitive
Certificates will be issued in minimum denominations of $10,000, except that any
beneficial ownership that was represented by a Book-Entry Certificate in an
amount less than $10,000 immediately prior to the issuance of a Definitive
Certificate shall be issued in a minimum denomination equal to the amount
represented by such Book-Entry Certificate. None of the Depositor, the
Servicers, the Trust Administrator or the Trustee shall be liable for any delay
in the delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or to be
performed by the Depository shall be deemed to be imposed upon and performed by
the Trust Administrator, to the extent applicable with respect to such
Definitive Certificates, and the Trust Administrator shall recognize the Holders
of the Definitive Certificates as Certificateholders hereunder.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
(a) The Trust Administrator shall cause to be kept at one of
the offices or agencies to be appointed by the Trust Administrator in accordance
with the provisions of Section 8.11 a Certificate Register for the Certificates
in which, subject to such reasonable regulations as it may prescribe, the Trust
Administrator shall provide for the registration of Certificates and of
transfers and exchanges of Certificates as herein provided.
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(b) No transfer of any Class CE Certificate, Class P
Certificate or Residual Certificate shall be made unless that transfer is made
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), and effective registration or qualification
under applicable state securities laws, or is made in a transaction that does
not require such registration or qualification. In the event that such a
transfer of a Class CE Certificate, Class P Certificate or Residual Certificate
is to be made without registration or qualification (other than in connection
with the initial transfer of any such Certificate by the Depositor to an
affiliate of the Depositor), the Trust Administrator shall require receipt of:
(i) if such transfer is purportedly being made in reliance upon Rule 144A under
the 1933 Act, written certifications from the Certificateholder desiring to
effect the transfer and from such Certificateholder's prospective transferee,
substantially in the forms attached hereto as Exhibit F-1; and (ii) in all other
cases, an Opinion of Counsel satisfactory to it that such transfer may be made
without such registration or qualification (which Opinion of Counsel shall not
be an expense of the Trust Fund or of the Depositor, the Trust Administrator,
the Trustee, each Servicer in its capacity as such, any Sub-Servicer or the
Certificate Insurer), together with copies of the written certification(s) of
the Certificateholder desiring to effect the transfer and/or such
Certificateholder's prospective transferee upon which such Opinion of Counsel is
based, if any. None of the Depositor, the Trust Administrator or the Trustee is
obligated to register or qualify any such Certificates under the 1933 Act or any
other securities laws or to take any action not otherwise required under this
Agreement to permit the transfer of such Certificates without registration or
qualification. Any Certificateholder desiring to effect the transfer of any such
Certificate shall, and does hereby agree to, indemnify the Trust Administrator,
the Trustee, the Depositor, the Servicers and the Certificate Insurer against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.
(c) No transfer of a Class CE Certificate, Class P Certificate
or Residual Certificate or any interest therein shall be made to any Plan
subject to ERISA or Section 4975 of the Code, any Person acting, directly or
indirectly, on behalf of any such Plan or any Person acquiring such Certificates
with "Plan Assets" of a Plan within the meaning of the Department of Labor
regulation promulgated at 29 C.F.R. ss. 2510.3-101 ("Plan Assets") unless the
Depositor, the Trust Administrator, the Trustee, the Certificate Insurer and the
Servicers are provided with an Opinion of Counsel which establishes to the
satisfaction of the Depositor, the Trust Administrator, the Trustee, the
Certificate Insurer and the Servicers that the purchase of such Certificates is
permissible under applicable law, will not constitute or result in any
prohibited transaction under ERISA or Section 4975 of the Code and will not
subject the Depositor, either Servicer, the Trust Administrator, the Trustee,
the Certificate Insurer or the Trust Fund to any obligation or liability
(including obligations or liabilities under ERISA or Section 4975 of the Code)
in addition to those undertaken in this Agreement, which Opinion of Counsel
shall not be an expense of the Depositor, the Servicers, the Trust
Administrator, the Trustee, the Certificate Insurer or the Trust Fund. In lieu
of such Opinion of Counsel, any prospective Transferee of such Certificates may
provide a certification in the form of Exhibit G to this Agreement (or other
form acceptable to the Depositor, the Trust Administrator, the Trustee, the
Certificate Insurer and the Servicers), which the Trust Administrator may rely
upon without further inquiry or investigation. Neither an Opinion of Counsel nor
any certification will be required in connection with the initial transfer of
any such Certificate by the Depositor to an affiliate of the Depositor (in which
case, the Depositor or any affiliate thereof shall have deemed to have
represented that such affiliate is not a Plan or a Person investing Plan Assets)
and the Trust Administrator shall be entitled to conclusively rely upon a
representation (which, upon the request of the Trust Administrator, shall be a
written representation) from the Depositor of the status of such transferee as
an affiliate of the Depositor.
(d) (i) Each Person who has or who acquires any Ownership
Interest in a Residual Certificate shall be deemed by the acceptance or
acquisition of such Ownership Interest to have agreed to
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be bound by the following provisions and to have irrevocably authorized the
Trust Administrator or its designee under clause (iii)(A) below to deliver
payments to a Person other than such Person and to negotiate the terms of any
mandatory sale under clause (iii)(B) below and to execute all instruments of
Transfer and to do all other things necessary in connection with any such sale.
The rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:
(A) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall be
a Permitted Transferee and shall promptly notify the
Trust Administrator of any change or impending change
in its status as a Permitted
Transferee.
(B) In connection with any proposed Transfer
of any Ownership Interest in a Residual Certificate,
the Trust Administrator shall require delivery to it,
and shall not register the Transfer of any Residual
Certificate until its receipt of, an affidavit and
agreement (a "Transfer Affidavit and Agreement," in
the form attached hereto as Exhibit F-2) from the
proposed Transferee, in form and substance
satisfactory to the Trust Administrator, representing
and warranting, among other things, that such
Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual
Certificate that is the subject of the proposed
Transfer as a nominee, trustee or agent for any
Person that is not a Permitted Transferee, that for
so long as it retains its Ownership Interest in a
Residual Certificate, it will endeavor to remain a
Permitted Transferee, and that it has reviewed the
provisions of this Section 5.02(d) and agrees to be
bound by them.
(C) Notwithstanding the delivery of a
Transfer Affidavit and Agreement by a proposed
Transferee under clause (B) above, if a Responsible
Officer of the Trust Administrator who is assigned to
this transaction has actual knowledge that the
proposed Transferee is not a Permitted Transferee, no
Transfer of an Ownership Interest in a Residual
Certificate to such proposed Transferee shall be
effected.
(D) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall
agree (x) to require a transferor affidavit (a
"Transferor Affidavit," in the form attached hereto
as Exhibit F-2) from any other Person to whom such
Person attempts to transfer its Ownership Interest in
a Residual Certificate and (y) not to transfer its
Ownership Interest unless it provides a Transferor
Affidavit (in the form attached hereto as Exhibit
F-2) to the Trust Administrator stating that, among
other things, it has no actual knowledge that such
other Person is not a Permitted Transferee.
(E) Each Person holding or acquiring an
Ownership Interest in a Residual Certificate, by
purchasing an Ownership Interest in such Certificate,
agrees to give the Trust Administrator written notice
that it is a "pass-through interest holder" within
the meaning of temporary Treasury regulation Section
1.67- 3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Residual Certificate, if it
is, or is holding an Ownership Interest in a Residual
Certificate on behalf of, a "pass-through interest
holder."
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(ii) The Trust Administrator will register the Transfer
of any Residual Certificate only if it shall have received the
Transfer Affidavit and Agreement and all of such other
documents as shall have been reasonably required by the Trust
Administrator as a condition to such registration. In
addition, no Transfer of a Residual Certificate shall be made
unless the Trust Administrator shall have received a
representation letter from the Transferee of such Certificate
to the effect that such Transferee is a Permitted Transferee.
(iii) (A) If any purported Transferee shall become a
Holder of a Residual Certificate in violation of the
provisions of this Section 5.02(d), then the last preceding
Permitted Transferee shall be restored, to the extent
permitted by law, to all rights as holder thereof retroactive
to the date of registration of such Transfer of such Residual
Certificate. The Trust Administrator shall be under no
liability to any Person for any registration of Transfer of a
Residual Certificate that is in fact not permitted by this
Section 5.02(d) or for making any payments due on such
Certificate to the holder thereof or for taking any other
action with respect to such holder under the provisions of
this Agreement.
(B) If any purported Transferee shall become
a holder of a Residual Certificate in violation of the
restrictions in this Section 5.02(d) and to the extent that
the retroactive restoration of the rights of the holder of
such Residual Certificate as described in clause (iii)(A)
above shall be invalid, illegal or unenforceable, then the
Trust Administrator shall have the right, without notice to
the holder or any prior holder of such Residual Certificate,
to sell such Residual Certificate to a purchaser selected by
the Trust Administrator on such terms as the Trust
Administrator may choose. Such purported Transferee shall
promptly endorse and deliver each Residual Certificate in
accordance with the instructions of the Trust Administrator.
Such purchaser may be the Trust Administrator itself or any
Affiliate of the Trust Administrator. The proceeds of such
sale, net of the commissions (which may include commissions
payable to the Trust Administrator or its Affiliates),
expenses and taxes due, if any, will be remitted by the Trust
Administrator to such purported Transferee. The terms and
conditions of any sale under this clause (iii)(B) shall be
determined in the sole discretion of the Trust Administrator,
and the Trust Administrator shall not be liable to any Person
having an Ownership Interest in a Residual Certificate as a
result of its exercise of such discretion.
(iv) The Trust Administrator shall make available to the
Internal Revenue Service and those Persons specified by the
REMIC Provisions all information necessary to compute any tax
imposed (A) as a result of the Transfer of an Ownership
Interest in a Residual Certificate to any Person who is a
Disqualified Organization, including the information described
in Treasury regulations sections 1.860D-1(b)(5) and
1.860E-2(a)(5) with respect to the "excess inclusions" of such
Residual Certificate and (B) as a result of any regulated
investment company, real estate investment trust, common trust
fund, partnership, trust, estate or organization described in
Section 1381 of the Code that holds an Ownership Interest in a
Residual Certificate having as among its record holders at any
time any Person which is a Disqualified Organization.
Reasonable compensation for providing such information may be
accepted by the Trust Administrator.
(v) The provisions of this Section 5.02(d) set forth
prior to this subsection (v) may be modified, added to or
eliminated, provided that there shall have been delivered to
the Trust Administrator at the expense of the party seeking to
modify, add to or eliminate any such provision the following:
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(A) written notification from each Rating
Agency to the effect that the modification, addition
to or elimination of such provisions will not cause
such Rating Agency to downgrade its then-current
ratings of any Class of Certificates; and
(B) an Opinion of Counsel, in form and
substance satisfactory to the Trust Administrator, to
the effect that such modification of, addition to or
elimination of such provisions will not cause any of
REMIC I, REMIC II or REMIC III to cease to qualify as
a REMIC and will not cause any of REMIC I, REMIC II
or REMIC III, as the case may be, to be subject to an
entity-level tax caused by the Transfer of any
Residual Certificate to a Person that is not a
Permitted Transferee or a Person other than the
prospective transferee to be subject to a REMIC-tax
caused by the Transfer of a Residual Certificate to a
Person that is not a Permitted Transferee.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at any office or agency of the Trust
Administrator maintained for such purpose pursuant to Section 8.11, the Trust
Administrator shall execute, authenticate and deliver, in the name of the
designated Transferee or Transferees, one or more new Certificates of the same
Class of a like aggregate Percentage Interest.
(f) At the option of the Holder thereof, any Certificate may
be exchanged for other Certificates of the same Class with authorized
denominations and a like aggregate Percentage Interest, upon surrender of such
Certificate to be exchanged at any office or agency of the Trust Administrator
maintained for such purpose pursuant to Section 8.11. Whenever any Certificates
are so surrendered for exchange the Trust Administrator shall execute,
authenticate and deliver the Certificates which the Certificateholder making the
exchange is entitled to receive. Every Certificate presented or surrendered for
transfer or exchange shall (if so required by the Trust Administrator) be duly
endorsed by, or be accompanied by a written instrument of transfer in the form
satisfactory to the Trust Administrator duly executed by, the Holder thereof or
his attorney duly authorized in writing.
(g) No service charge to the Certificateholders shall be made
for any transfer or exchange of Certificates, but the Trust Administrator may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
(h) All Certificates surrendered for transfer and exchange
shall be canceled and destroyed by the Trust Administrator in accordance with
its customary procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Trust
Administrator, or the Trust Administrator receives evidence to its satisfaction
of the destruction, loss or theft of any Certificate, and (ii) there is
delivered to each of the Trustee and the Trust Administrator such security or
indemnity as may be required by it to save it harmless, then, in the absence of
actual knowledge by the Trust Administrator or the Trustee that such Certificate
has been acquired by a bona fide purchaser, the Trustee, or the Trust
Administrator on behalf of the Trustee shall execute, and the Trustee or the
Trust Administrator shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of the same Class and of like denomination and Percentage Interest. Upon
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the issuance of any new Certificate under this Section, the Trust Administrator
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Trust
Administrator) connected therewith. Any replacement Certificate issued pursuant
to this Section shall constitute complete and indefeasible evidence of ownership
in the applicable REMIC created hereunder, as if originally issued, whether or
not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, each Servicer, the Trust Administrator, the
Trustee, the Certificate Insurer and any agent of any of them may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 4.01
and for all other purposes whatsoever, and none of the Depositor, the Servicers,
the Trust Administrator, the Trustee or any agent of any of them shall be
affected by notice to the contrary.
SECTION 5.05. Certain Available Information.
On or prior to the date of the first sale of any Class CE
Certificate, Class P Certificate or Residual Certificate to an Independent third
party, the Depositor shall provide to the Trust Administrator ten copies of any
private placement memorandum or other disclosure document used by the Depositor
in connection with the offer and sale of such Certificate. In addition, if any
such private placement memorandum or disclosure document is revised, amended or
supplemented at any time following the delivery thereof to the Trust
Administrator, the Depositor promptly shall inform the Trust Administrator of
such event and shall deliver to the Trust Administrator ten copies of the
private placement memorandum or disclosure document, as revised, amended or
supplemented. The Trust Administrator shall maintain at its Corporate Trust
Office and shall make available free of charge during normal business hours for
review by any Holder of a Certificate or any Person identified to the Trust
Administrator as a prospective transferee of a Certificate, originals or copies
of the following items: (i) in the case of a Holder or prospective transferee of
a Class CE Certificate, Class P Certificate or Residual Certificate, the related
private placement memorandum or other disclosure document relating to such Class
of Certificates, in the form most recently provided to the Trust Administrator;
and (ii) in all cases, (A) this Agreement and any amendments hereof entered into
pursuant to Section 12.01, (B) all monthly statements required to be delivered
to Certificateholders of the relevant Class pursuant to Section 4.02 since the
Closing Date, and all other notices, reports, statements and written
communications delivered to the Certificateholders of the relevant Class
pursuant to this Agreement since the Closing Date, (C) all certifications
delivered by a Responsible Officer of the Trust Administrator since the Closing
Date pursuant to Section 11.01(h), (D) any and all Officers' Certificates
delivered to the Trust Administrator by either Servicer since the Closing Date
to evidence such Servicer's determination that any P&I Advance or Servicing
Advance was, or if made, would be a Nonrecoverable P&I Advance or Nonrecoverable
Servicing Advance, respectively, and (E) any and all Officers' Certificates
delivered to the Trust Administrator by the Servicers since the Closing Date
pursuant to Section 4.04(a). Copies and mailing of any and all of the foregoing
items will be available from the Trust Administrator upon request at the expense
of the Person requesting the same.
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ARTICLE VI
THE DEPOSITOR AND THE SERVICERS
SECTION 6.01. Liability of the Depositor and the Servicers.
The Depositor and each Servicer shall be liable in accordance
herewith only to the extent of the obligations specifically imposed by this
Agreement and undertaken hereunder by the Depositor and
each Servicer herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the
Servicers.
Subject to the following paragraph, the Depositor will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the jurisdiction of its incorporation. Subject to the following paragraph,
each Servicer will keep in full effect its existence, rights and franchises as a
corporation under the laws of the jurisdiction of its incorporation. The
Depositor and each Servicer will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement.
The Depositor or either Servicer may be merged or consolidated
with or into any Person, or transfer all or substantially all of its assets to
any Person, in which case any Person resulting from any merger or consolidation
to which the Depositor or such Servicer shall be a party, or any Person
succeeding to the business of the Depositor or such Servicer, shall be the
successor of the Depositor or such Servicer, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided, however, that the successor or surviving Person to such Servicer shall
be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac;
and provided further that the Rating Agencies' ratings and shadow ratings of the
Class A Certificates in effect immediately prior to such merger or consolidation
will not be qualified, reduced or withdrawn as a result thereof (as evidenced by
a letter to such effect from the Rating Agencies).
SECTION 6.03. Limitation on Liability of the Depositor, the
Servicers and Others.
None of the Depositor, either Servicer or any of the
directors, officers, employees or agents of the Depositor or either Servicer
shall be under any liability to the Trust Fund or the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, either Servicer or any such
person against any breach of warranties, representations or covenants made
herein, or against any specific liability imposed on the Depositor or such
Servicer pursuant hereto, or against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. The Depositor, each Servicer and any director, officer,
employee or agent of the Depositor or such Servicer may rely in good faith on
any document of any kind which, PRIMA FACIE, is properly executed and submitted
by any Person respecting any matters arising hereunder. The Depositor, each
Servicer and any director, officer, employee or agent of the Depositor or such
Servicer shall be indemnified and held harmless by the Trust Fund against any
loss, liability or expense incurred in connection with any legal action relating
to this Agreement or the Certificates, other than any loss, liability or expense
relating to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or any loss, liability or expense
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incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor nor either Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
unless such action is related to its respective duties under this Agreement and,
in its opinion, does not involve it in any expense or liability; provided,
however, that each of the Depositor and each Servicer may in its discretion
undertake any such action which it may deem necessary or desirable with respect
to this Agreement and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, unless the
Depositor or either Servicer acts without the consent of the Certificate Insurer
prior to a Certificate Insurer Default or without the consent of Holders of
Certificates entitled to at least 51% of the Voting Rights after a Certificate
Insurer Default, the legal expenses and costs of such action and any liability
resulting therefrom (except any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder) shall be expenses, costs and liabilities of the Trust Fund, and the
Depositor and each Servicer shall be entitled to be reimbursed therefor from the
Collection Account as and to the extent provided in Section 3.11, any such right
of reimbursement being prior to the rights of the Certificateholders to receive
any amount in the Collection Account.
SECTION 6.04. Limitation on Resignation of the Servicers.
Neither Servicer nor the Master Servicer shall resign from the
obligations and duties hereby imposed on it except upon determination that its
duties hereunder are no longer permissible under applicable law. Any such
determination pursuant to the preceding sentence permitting the resignation of
the Master Servicer or either Servicer shall be evidenced by an Opinion of
Counsel to such effect obtained at the expense of such Master Servicer or
Servicer and delivered to the Trustee and the Trust Administrator. No
resignation of the Master Servicer or either Servicer shall become effective
until the Master Servicer (if the Master Servicer is not the resigning
Servicer), the Trustee, the Trust Administrator or a successor servicer shall
have assumed such Master Servicer's or Servicer's responsibilities, duties,
liabilities (other than those liabilities arising prior to the appointment of
such successor) and obligations under this Agreement.
Except as expressly provided herein, neither Servicer nor the
Master Servicer shall assign or transfer any of its rights, benefits or
privileges hereunder to any other Person, or delegate to or subcontract with, or
authorize or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by such Master Servicer or Servicer hereunder. The
foregoing prohibition on assignment shall not prohibit either Servicer from
designating a Subservicer as payee of any indemnification amount payable to the
related Servicer hereunder; provided, however, that as provided in Section 3.06
hereof, no Subservicer shall be a third-party beneficiary hereunder and the
parties hereto shall not be required to recognize any Subservicer as an
indemnitee under this Agreement. If, pursuant to any provision hereof, the
duties of the Master Servicer or either Servicer are transferred to a successor
servicer, the entire amount of the Master Servicing Fee or Servicing Fee and
other compensation payable to such Master Servicer or Servicer pursuant hereto
shall thereafter be payable to such successor servicer.
SECTION 6.05. Rights of the Depositor in Respect of the
Servicers.
The Master Servicer and each Servicer shall afford (and any
Sub-Servicing Agreement shall provide that each Sub-Servicer shall afford) the
Depositor, the Trustee, the Trust Administrator and the Certificate Insurer,
upon reasonable notice, during normal business hours, access to all records
maintained by the such Master Servicer or Servicer (and any such Sub-Servicer)
in respect of such Master Servicer's or Servicer's rights and obligations
hereunder and access to officers of such Master Servicer or
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Servicer (and those of any such Sub-Servicer) responsible for such obligations.
Upon request, the Master Servicer and each Servicer shall furnish to the
Depositor, the Trustee, the Trust Administrator and the Certificate Insurer its
(and any such Sub-Servicer's) most recent financial statements and such other
information relating to such Master Servicer's or Servicer's capacity to perform
its obligations under this Agreement as it possesses (and that any such
Sub-Servicer possesses). To the extent such information is not otherwise
available to the public, the Depositor, the Trustee, the Trust Administrator and
the Certificate Insurer shall not disseminate any information obtained pursuant
to the preceding two sentences without the Master Servicer's or the related
Servicer's written consent, except as required pursuant to this Agreement or to
the extent that it is appropriate to do so (i) in working with legal counsel,
auditors, taxing authorities or other governmental agencies or (ii) pursuant to
any law, rule, regulation, order, judgment, writ, injunction or decree of any
court or governmental authority having jurisdiction over the Depositor, the
Trustee, the Trust Administrator, the Certificate Insurer or the Trust Fund, and
in any case, the Depositor, the Trustee, the Trust Administrator or the
Certificate Insurer, as the case may be, shall use its best efforts to assure
the confidentiality of any such disseminated non-public information. The
Depositor may, but is not obligated to, enforce the obligations of the Master
Servicer and each Servicer under this Agreement and may, but is not obligated
to, perform, or cause a designee to perform, any defaulted obligation of the
Master Servicer or either Servicer under this Agreement or exercise the rights
of the Master Servicer or either Servicer under this Agreement; provided that
neither Servicer nor the Master Servicer shall be relieved of any of its
obligations under this Agreement by virtue of such performance by the Depositor
or its designee. The Depositor shall not have any responsibility or liability
for any action or failure to act by the Master Servicer or either Servicer and
is not obligated to supervise the performance of the Master Servicer or either
Servicer under this Agreement or otherwise.
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ARTICLE VII
DEFAULT
SECTION 7.01. Servicer Events of Default.
(a) "Servicer Event of Default," wherever used herein, means
any one of the following events; provided, however, that neither Servicer shall
be obligated or liable for any default by the other Servicer:
(i) any failure by the related Servicer to remit to the
Trust Administrator for distribution to the Certificateholders
any payment (other than a P&I Advance required to be made from
its own funds on any Servicer Remittance Date pursuant to
Section 4.03) required to be made under the terms of the
Certificates and this Agreement which continues unremedied for
a period of one Business Day after the date upon which written
notice of such failure, requiring the same to be remedied,
shall have been given to such Servicer by the Depositor, the
Certificate Insurer, the Trustee or the Trust Administrator
(in which case notice shall be provided by telecopy), or to
such Servicer, the Depositor, the Certificate Insurer, the
Trustee and the Trust Administrator by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(ii) any failure on the part of the related Servicer
duly to observe or perform in any material respect any other
of the covenants or agreements on the part of such Servicer
contained in this Agreement, or the breach by the related
Servicer of any representation and warranty contained in
Section 2.05, which continues unremedied for a period of 30
days after the earlier of (i) the date on which written notice
of such failure, requiring the same to be remedied, shall have
been given to the related Servicer by the Depositor, the
Certificate Insurer, the Trustee, the Trust Administrator or
to the related Servicer, the Depositor, the Certificate
Insurer, the Trustee and the Trust Administrator by the
Holders of Certificates entitled to at least 25% of the Voting
Rights and (ii) actual knowledge of such failure by a
Servicing Officer of the related Servicer; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises in
an involuntary case under any present or future federal or
state bankruptcy, insolvency or similar law or the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceeding, or for the winding-up or liquidation of
its affairs, shall have been entered against the related
Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 days; or
(iv) the related Servicer shall consent to the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to it or of
or relating to all or substantially all of its property; or
(v) the related Servicer shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations; or
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(vi) there shall have occurred, and the Certificate
Insurer shall have notified the related Servicer, the Trustee
and the Trust Administrator of, an event of default by such
Servicer under the Insurance Agreement, provided (except in
the case of a default by such Servicer under Section 5.01(f)
of the Insurance Agreement) that no Certificate Insurer
Default exists; or
(vii) any failure of the related Servicer to make any P&I
Advance on any Servicer Remittance Date required to be made
from its own funds pursuant to Section 4.03 which continues
unremedied until 5:00 p.m. New York time on the second
Business Day immediately following the Servicer Remittance
Date.
Subject to Article IX, if a Servicer Event of Default described in clauses (i)
through (vi) of this Section shall occur, then, and in each and every such case,
so long as such Servicer Event of Default shall not have been remedied, the
Depositor, the Certificate Insurer or the Trustee may (with the consent of the
Certificate Insurer), and at the written direction of the Holders of
Certificates entitled to at least 51% of Voting Rights (with the consent of the
Certificate Insurer), the Trustee shall, by notice in writing to the defaulting
Servicer (and to the Depositor, the Trust Administrator, the Master Servicer and
the Certificate Insurer if given by the Trustee or to the Trustee, the Master
Servicer and the Trust Administrator if given by the Depositor or the
Certificate Insurer), terminate all of the rights and obligations of such
Servicer in its capacity as a Servicer under this Agreement, to the extent
permitted by law, and in and to the Mortgage Loans and the proceeds thereof. In
connection with the foregoing, in the event a Servicer Event of Default has
occurred with respect to Option One, the Master Servicer has the right to
request the Certificate Insurer to terminate all of the rights and obligations
of Option One as Servicer under this Agreement; provided, however such decision
to terminate shall be solely at the discretion of the Certificate Insurer.
Subject to Article IX, if a Servicer Event of Default described in clause (vii)
hereof shall occur, the Trustee shall, by notice in writing to the defaulting
Servicer, the Certificate Insurer, the Master Servicer, the Trust Administrator
and the Depositor, terminate all of the rights and obligations of such Servicer
in its capacity as a Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof. On or after the receipt by the defaulting
Servicer of such written notice, all authority and power of such Servicer under
this Agreement, whether with respect to the Certificates (other than as a Holder
of any Certificate) or the Mortgage Loans or the Policy or otherwise, shall pass
to and be vested in the Master Servicer (or if the Master Servicer is the
defaulting Servicer, the Trust Administrator, on behalf of the Trustee) pursuant
to and under this Section, and, without limitation, the Master Servicer (or if
the Master Servicer is the defaulting Servicer, the Trust Administrator, on
behalf of the Trustee) is hereby authorized and empowered, as attorney-in-fact
or otherwise, to execute and deliver, on behalf of and at the expense of such
Servicer, any and all documents and other instruments and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise. The
defaulting Servicer agrees promptly (and in any event no later than ten Business
Days subsequent to such notice) to provide the Master Servicer (or if the Master
Servicer is the defaulting Servicer, the Trust Administrator) with all documents
and records requested by it to enable it to assume such Servicer's functions
under this Agreement, and to cooperate with the Master Servicer or the Trust
Administrator and the Trustee, as the case may be, in effecting the termination
of such Servicer's responsibilities and rights under this Agreement, including,
without limitation, the transfer within one Business Day to the Master Servicer
(or if the Master Servicer is the defaulting Servicer, the Trust Administrator)
for administration by it of all cash amounts which at the time shall be or
should have been credited by such Servicer to the Collection Account held by or
on behalf of such Servicer, the Distribution Account, the Expense Account, the
Policy Payments Account or any REO Account or Servicing Account held by or on
behalf of such Servicer or thereafter be received with respect to the Mortgage
Loans or any REO Property serviced by
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such Servicer (provided, however, that the related Servicer shall continue to be
entitled to receive all amounts accrued or owing to it under this Agreement on
or prior to the date of such termination, whether in respect of P&I Advances or
otherwise, and shall continue to be entitled to the benefits of Section 6.03,
notwithstanding any such termination, with respect to events occurring prior to
such termination). For purposes of this Section 7.01, each of the Trustee and
the Trust Administrator shall not be deemed to have knowledge of a Servicer
Event of Default unless a Responsible Officer of the Trustee or the Trust
Administrator, as applicable, assigned to and working in the Trustee's or the
Trust Administrator's, as the case may be, Corporate Trust Office has actual
knowledge thereof or unless written notice of any event which is in fact such a
Servicer Event of Default is received by the Trustee or the Trust Administrator,
as applicable, and such notice references the Certificates, the Trust Fund or
this Agreement. Notwithstanding the foregoing, in the event the Master Servicer
is terminated as Servicer hereunder, it shall also be terminated as Master
Servicer.
Each Servicer hereby covenants and agrees to act as a Servicer
under this Agreement for an initial term, commencing on the Closing Date and
ending on ______________, which term shall be extendable by the Certificate
Insurer for successive terms of three calendar months thereafter, until the
termination of the Trust Fund pursuant to Article X. Each such notice of
extension (a "Servicer Extension Notice") shall be delivered by the Certificate
Insurer to the Trustee, the Trust Administrator and the related Servicer. Each
Servicer hereby agrees that, upon its receipt of any such Servicer Extension
Notice, such Servicer shall become bound for the duration of the term covered by
such Servicer Extension Notice to continue as a Servicer subject to and in
accordance with the other provisions of this Agreement. The Trust Administrator
agrees that if as of the fifteenth (15th) day prior to the last day of any term
of a Servicer the Trust Administrator shall not have received any Servicer
Extension Notice in respect of that Servicer from the Certificate Insurer, the
Trust Administrator will within five (5) days thereafter, give written notice of
such non-receipt to the Certificate Insurer, the Trustee and the related
Servicer. The failure of the Certificate Insurer to deliver a Servicer Extension
Notice by the end of a calendar term shall result in the termination of the
related Servicer (in its capacity as Servicer and Master Servicer, in the case
of the Master Servicer). If the term of the related Servicer shall expire
without the Certificate Insurer having delivered to such Servicer a Servicer
Extension Notice, but the related Servicer shall continue without objection from
the Trust Administrator, the Trustee or the Certificate Insurer to perform the
functions of servicer hereunder (and in the absence of ground for termination
under any agreement referred to in Section 7.04), the related Servicer shall be
entitled to receive a prorated portion of the Servicing Fee specified hereunder
for the time during which it shall so act; PROVIDED, that it is understood and
agreed that the foregoing provision for payment of the prorated Servicing Fee is
intended solely to avoid unjust enrichment of the Trust Fund and does not
contemplate or give rise to any implicit renewal of such Servicer's term. The
foregoing provisions of this paragraph shall not apply to the Trust
Administrator or the Trustee in the event the Trust Administrator or the
Trustee, as applicable, succeeds to the rights and obligations of the related
Servicer and the Trust Administrator or the Trustee, as applicable, shall
continue in such capacity until the earlier of the termination of this Agreement
pursuant to Article X or the appointment of a successor servicer, but shall
apply to the Master Servicer if the Master Servicer succeeds to the rights and
obligations of Option One as Servicer.
SECTION 7.02. Master Servicer, Trust Administrator or Trustee
to Act; Appointment of Successor.
(a) (1) On and after the time a defaulting Servicer receives a
notice of termination, the Master Servicer (or if the Master Servicer is the
defaulting Servicer, the Trust Administrator and in the event the Trust
Administrator fails in its obligation, the Trustee) shall be the successor in
all respects to such Servicer in its capacity as a Servicer under this Agreement
and the transactions set forth or provided
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for herein, and all the responsibilities, duties and liabilities relating
thereto and arising thereafter shall be assumed by the Master Servicer, the
Trust Administrator or the Trustee, as applicable, (except for any
representations or warranties of the such Servicer under this Agreement, the
responsibilities, duties and liabilities contained in Section 2.03(c) and the
obligation to deposit amounts in respect of losses pursuant to Section 3.12) by
the terms and provisions hereof including, without limitation, the such
Servicer's obligations to make P&I Advances pursuant to Section 4.03; provided,
however, that if the Trust Administrator or the Trustee, as applicable, is
prohibited by law or regulation from obligating itself to make advances
regarding delinquent mortgage loans, then the Trust Administrator or the
Trustee, as applicable, shall not be obligated to make P&I Advances pursuant to
Section 4.03; and provided further, that any failure to perform such duties or
responsibilities caused by such Servicer's failure to provide information
required by Section 7.01 shall not be considered a default by the Master
Servicer, the Trust Administrator or the Trustee, as applicable, as successor to
such Servicer hereunder. As compensation therefor, the Master Servicer, the
Trust Administrator or the Trustee, as applicable, shall be entitled to the
Servicing Fee and all funds relating to the Mortgage Loans to which such
defaulting Servicer would have been entitled if it had continued to act
hereunder. Notwithstanding the above and subject to Section 7.02(a)(2) below,
the Trust Administrator or the Trustee, as applicable, may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if it is prohibited
by law from making advances regarding delinquent mortgage loans or if the
Certificate Insurer or if the Holders of Certificates entitled to at least 51%
of the Voting Rights so request in writing to the Trust Administrator or the
Trustee, as applicable, promptly appoint or petition a court of competent
jurisdiction to appoint, an established mortgage loan servicing institution
selected by the Certificate Insurer and acceptable to each Rating Agency and
having a net worth of not less than $15,000,000, as the successor to such
defaulting Servicer under this Agreement in the assumption of all or any part of
the responsibilities, duties or liabilities of such Servicer under this
Agreement.
(2) No appointment of a successor to a defaulting
Servicer under this Agreement shall be effective until the assumption by the
successor of all of such Servicer's responsibilities, duties and liabilities
hereunder. In connection with such appointment and assumption described herein,
the Trust Administrator or the Trustee, as applicable, may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree; provided, however, that no such
compensation shall be in excess of that permitted the applicable Servicer as
such hereunder. The Depositor, the Master Servicer, the Trustee, the Trust
Administrator and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. Pending
appointment of a successor to a defaulting Servicer under this Agreement, the
Trust Administrator or the Trustee, as applicable, shall act in such capacity as
hereinabove provided.
(b) If either Servicer fails to remit to the Trust
Administrator for distribution to the Certificateholders any payment required to
be made under the terms of this Agreement (for purposes of this Section 7.02(b),
a "Remittance") because such Servicer is the subject of a proceeding under the
federal Bankruptcy Code and the making of such Remittance is prohibited by
Section 362 of the federal Bankruptcy Code, the Trust Administrator shall (and
in the event the Trust Administrator fails in its obligation, the Trustee) upon
notice of such prohibition, regardless of whether it has received a notice of
termination under Section 7.01, advance the amount of such Remittance by
depositing such amount in the Distribution Account on the related Distribution
Date. The Trust Administrator or the Trustee, as applicable, shall be obligated
to make such advance only if (i) such advance, in the good faith judgment of the
Trust Administrator or the Trustee, as applicable, can reasonably be expected to
be ultimately recoverable from Stayed Funds and (ii) the Trust Administrator or
the Trustee, as applicable, is not prohibited by law from making such advance or
obligating itself to do so. Upon remittance of the Stayed Funds to the Trust
Administrator or the deposit thereof in the Distribution Account by such
Servicer, a
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trustee in bankruptcy or a federal bankruptcy court, the Trust Administrator or
the Trustee, as applicable, may recover the amount so advanced, without
interest, by withdrawing such amount from the Distribution Account; however,
nothing in this Agreement shall be deemed to affect the Trust Administrator's or
Trustee's, as applicable, rights to recover from such Servicer's own funds
interest on the amount of any such advance. If the Trust Administrator or the
Trustee, as the case may be, at any time makes an advance under this Subsection
which it later determines in its good faith judgment will not be ultimately
recoverable from the Stayed Funds with respect to which such advance was made,
the Trust Administrator or the Trustee, as applicable, shall be entitled to
reimburse itself for such advance, without interest, by withdrawing from the
Distribution Account, out of amounts on deposit therein, an amount equal to the
portion of such advance attributable to the Stayed Funds.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination of either Servicer pursuant to
Section 7.01 above or any appointment of a successor to such Servicer pursuant
to Section 7.02 above, the Trust Administrator shall give prompt written notice
thereof to Certificateholders at their respective addresses appearing in the
Certificate Register.
(b) Not later than the later of 60 days after the occurrence
of any event, which constitutes or which, with notice or lapse of time or both,
would constitute a Servicer Event of Default or five days after a Responsible
Officer of the Trustee or the Trust Administrator becomes aware of the
occurrence of such an event, the Trustee or the Trust Administrator shall
transmit (or, in the case of the Trustee, the Trustee shall cause the Trust
Administrator to transmit) by mail to all Holders of Certificates notice of each
such occurrence, unless such default or Servicer Event of Default shall have
been cured or waived.
SECTION 7.04. Waiver of Servicer Events of Default.
Subject to Article IX, the Holders representing at least 66%
of the Voting Rights evidenced by all Classes of Certificates affected by any
default or Servicer Event of Default hereunder, with the written consent of the
Certificate Insurer, may waive such default or Servicer Event of Default;
PROVIDED, HOWEVER, that a default or Servicer Event of Default under clause (i)
or (vi) of Section 7.01 may be waived only by all of the Holders of the Regular
Certificates with the written consent of the Certificate Insurer. Upon any such
waiver of a default or Servicer Event of Default, such default or Servicer Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Servicer Event of Default or impair any right consequent thereon
except to the extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE AND THE TRUST ADMINISTRATOR
SECTION 8.01. Duties of Trustee and Trust Administrator.
Each of the Trustee and the Trust Administrator, prior to the
occurrence of a Servicer Event of Default and after the curing of all Servicer
Events of Default which may have occurred, undertakes to perform such duties and
only such duties as are specifically set forth in this Agreement. During a
Servicer Event of Default, each of the Trustee and the Trust Administrator shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs. Any permissive right of the Trustee or the Trust Administrator
enumerated in this Agreement shall not be construed as a duty.
Each of the Trustee and the Trust Administrator, upon receipt
of all resolutions, certificates, statements, opinions, reports, documents,
orders or other instruments furnished to it, which are specifically required to
be furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform to the requirements of this Agreement. If any
such instrument is found not to conform to the requirements of this Agreement in
a material manner, it shall take such action as it deems appropriate to have the
instrument corrected, and if the instrument is not corrected to its
satisfaction, it will provide notice thereof to the Certificateholders and the
Certificate Insurer.
No provision of this Agreement shall be construed to relieve
the Trustee or the Trust Administrator from liability for its own negligent
action, its own negligent failure to act or its own misconduct; provided,
however, that:
(i) Prior to the occurrence of a Servicer Event of
Default, and after the curing of all such Servicer Events of
Default which may have occurred, the duties and obligations of
each of the Trustee and the Trust Administrator shall be
determined solely by the express provisions of this Agreement,
neither the Trustee nor the Trust Administrator shall be
liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement,
no implied covenants or obligations shall be read into this
Agreement against the Trustee or the Trust Administrator and,
in the absence of bad faith on the part of the Trustee or the
Trust Administrator, as applicable, the Trustee or the Trust
Administrator, as the case may be, may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee or the Trust Administrator, as the
case may be, that conform to the requirements of this
Agreement;
(ii) Neither the Trustee nor the Trust Administrator
shall be personally liable for an error of judgment made in
good faith by a Responsible Officer or Responsible Officers of
it unless it shall be proved that it was negligent in
ascertaining the pertinent facts; and
(iii) Neither the Trustee nor the Trust Administrator
shall be personally liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in
accordance with the direction of the Certificate Insurer or
Holders of Certificates entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting
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any proceeding for any remedy available to it or exercising
any trust or power conferred upon it under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee and the
Trust Administrator.
(a) Except as otherwise provided in Section 8.01:
(i) Each of the Trustee and the Trust Administrator may
request and rely upon and shall be protected in acting or
refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document
reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(ii) Each of the Trustee and the Trust Administrator may
consult with counsel and any Opinion of Counsel shall be full
and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good
faith and in
accordance with such Opinion of Counsel;
(iii) Neither the Trustee nor the Trust Administrator
shall be under any obligation to exercise any of the trusts or
powers vested in it by this Agreement or to institute, conduct
or defend any litigation hereunder or in relation hereto at
the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this
Agreement, unless such Certificateholders shall have offered
to the Trustee or the Trust Administrator, as applicable,
reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby;
nothing contained herein shall, however, relieve the Trustee
or the Trust Administrator of the obligation, upon the
occurrence of a Servicer Event of Default (which has not been
cured or waived), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of
care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such
person's own affairs;
(iv) Neither the Trustee nor the Trust Administrator
shall be personally liable for any action taken, suffered or
omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers
conferred upon it by this
Agreement;
(v) Prior to the occurrence of a Servicer Event of
Default hereunder and after the curing of all Servicer Events
of Default which may have occurred, neither the Trustee nor
the Trust Administrator shall be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by the Certificate Insurer or by Holders of Certificates
entitled to at least 25% of the Voting Rights; provided,
however, that if the payment within a reasonable time to the
Trustee or the Trust Administrator, as applicable, of the
costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the
Trustee or the Trust Administrator, as applicable, not
reasonably assured to the Trustee or the Trust Administrator,
as applicable, by such Certificateholders or the Certificate
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Insurer, the Trustee or the Trust Administrator, as
applicable, may require reasonable indemnity against such
expense, or liability from such Certificateholders or the
Certificate Insurer as a condition to taking any such action;
(vi) Each of the Trustee and the Trust Administrator may
execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through agents or
attorneys; and
(vii) Neither the Trustee nor the Trust Administrator
shall be personally liable for any loss resulting from the
investment of funds held in the Collection Account or the
Expense Account at the direction of the related Servicer
pursuant to Section 3.12.
(b) All rights of action under this Agreement or under any of
the Certificates, enforceable by the Trustee or the Trust Administrator, may be
enforced by it without the possession of any of the Certificates, or the
production thereof at the trial or other proceeding relating thereto, and any
such suit, action or proceeding instituted by the Trustee or the Trust
Administrator shall be brought in its name for the benefit of all the Holders of
such Certificates, subject to the provisions of this Agreement.
SECTION 8.03. Neither Trustee nor Trust Administrator Liable
for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other
than the signature of the Trustee or the Trust Administrator, on behalf of the
Trustee, the authentication of the Trustee or the Trust Administrator on the
Certificates, the acknowledgments of the Trustee and the Trust Administrator
contained in Article II and the representations and warranties of the Trustee
and the Trust Administrator in Section 8.12) shall be taken as the statements of
the Depositor and neither the Trustee nor the Trust Administrator assumes any
responsibility for their correctness. Neither the Trustee nor the Trust
Administrator makes any representations or warranties as to the validity or
sufficiency of this Agreement (other than as specifically set forth in Section
8.12) or of the Certificates (other than the signature of the Trustee, or the
Trust Administrator on behalf of the Trustee, and authentication of the Trustee
or the Trust Administrator on the Certificates) or of any Mortgage Loan or
related document. Neither the Trustee nor the Trust Administrator shall be
accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor or either Servicer in respect of
the Mortgage Loans or deposited in or withdrawn from the Collection Account by
either Servicer, other than any funds held by or on behalf of the Trustee or the
Trust Administrator in accordance with Section 3.10.
SECTION 8.04. Trustee and Trust Administrator May Own
Certificates.
Each of the Trustee and the Trust Administrator in its
individual capacity or any other capacity may become the owner or pledgee of
Certificates with the same rights it would have if it were not
Trustee or Trust Administrator, as applicable.
SECTION 8.05. Trustee's and Trust Administrator's Fees and
Expenses.
The Trust Administrator shall withdraw from the Distribution
Account on each Distribution Date and pay to itself the related portion of the
Administration Fee and pay to the Trustee the related portion of the
Administration Fee and, to the extent that the funds therein are at anytime
insufficient for such purpose, the Master Servicer shall pay such fees. Each of
the Trustee and the Trust Administrator
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and any director, officer, employee or agent of the Trustee or the Trust
Administrator, as applicable, shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee or the Trust
Administrator, as applicable, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the Trustee's
or Trust Administrator's, as the case may be, performance in accordance with the
provisions of this Agreement) incurred by the Trustee or the Trust
Administrator, as applicable, in connection with any claim or legal action or
any pending or threatened claim or legal action arising out of or in connection
with the acceptance or administration of its obligations and duties under this
Agreement, other than any loss, liability or expense (i) resulting from any
breach of either Servicer's (and in the case of the Trustee, the Trust
Administrator's or in the case of the Trust Administrator, the Trustee's)
obligations in connection with this Agreement, (ii) that constitutes a specific
liability of the Trustee or the Trust Administrator, as applicable, pursuant to
Section 11.01(g) or (iii) any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties hereunder
or in the case of the Trust Administrator, as a result of a breach of the Trust
Administrator's obligations under Article XI hereof. Each Servicer agrees to
indemnify the Trustee and the Trust Administrator, from, and hold each harmless
against, any loss, liability or expense arising in respect of any breach by such
Servicer of its obligations in connection with this Agreement. Such indemnity
shall survive the termination or discharge of this Agreement and the resignation
or removal of the Trustee or the Trust Administrator, as the case may be. Any
payment hereunder made by either Servicer to the Trustee or the Trust
Administrator shall be from such Servicer's own funds, without reimbursement
from REMIC I therefor.
SECTION 8.06. Eligibility Requirements for Trustee and Trust
Administrator.
Each of the Trustee and the Trust Administrator hereunder
shall at all times be a corporation or an association (other than the Depositor,
either Originator, the Seller, either Servicer or any Affiliate of the
foregoing) organized and doing business under the laws of any state or the
United States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 (or a
member of a bank holding company whose capital and surplus is at least
$50,000,000) and subject to supervision or examination by federal or state
authority. If such corporation or association publishes reports of conditions at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section the
combined capital and surplus of such corporation or association shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
conditions so published. In case at any time the Trustee or the Trust
Administrator shall cease to be eligible in accordance with the provisions of
this Section, the Trustee or the Trust Administrator, as the case may be, shall
resign immediately in the manner and with the effect specified in Section 8.07.
SECTION 8.07. Resignation and Removal of the Trustee and the
Trust Administrator.
Either of the Trustee or the Trust Administrator may at any
time resign and be discharged from the trust hereby created by giving written
notice thereof to the Depositor, the Certificate Insurer, each Servicer and to
the Certificateholders and, if the Trustee is resigning, to the Trust
Administrator, or, if the Trust Administrator is resigning, to the Trustee. Upon
receiving such notice of resignation, the Depositor shall, with the written
consent of the Certificate Insurer, promptly appoint a successor trustee or
trust administrator (which may be the same Person in the event both the Trustee
and the Trust Administrator resign or are removed) by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee or Trust
Administrator and to the successor trustee or trust administrator, as
applicable.
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A copy of such instrument shall be delivered to the Certificateholders, the
Certificate Insurer, the Trustee or Trust Administrator, as applicable, and each
Servicer by the Depositor. If no successor trustee or trust administrator shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee or Trust
Administrator, as applicable, may petition any court of competent jurisdiction
for the appointment of a successor trustee or trust administrator, as
applicable.
If at any time the Trustee or the Trust Administrator shall
cease to be eligible in accordance with the provisions of Section 8.06 and shall
fail to resign after written request therefor by the Depositor or the
Certificate Insurer (or in the case of the Trust Administrator, the Trustee), or
if at any time the Trustee or the Trust Administrator shall become incapable of
acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or the Trust Administrator or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or the Trust Administrator
or of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor (or in the case of the Trust Administrator, the
Trustee) may remove the Trustee or the Trust Administrator, as applicable, and
appoint a successor trustee or trust administrator (which may be the same Person
in the event both the Trustee and the Trust Administrator resign or are removed)
by written instrument, in duplicate, which instrument shall be delivered to the
Trustee or Trust Administrator, as the case may be, so removed and to the
successor trustee or trust administrator. A copy of such instrument shall be
delivered to the Certificateholders, the Certificate Insurer, the Trustee or the
Trust Administrator, as applicable, and each Servicer by the Depositor.
The Certificate Insurer or the Holders of Certificates
entitled to at least 51% of the Voting Rights, with the written consent of the
Certificate Insurer, may at any time remove the Trustee or the Trust
Administrator and appoint a successor trustee or trust administrator by written
instrument or instruments, in triplicate, signed by the Certificate Insurer or
such Holders or their attorneys-in-fact duly authorized, one complete set of
which instruments shall be delivered to the Depositor, one complete set to the
Trustee or the Trust Administrator, as the case may be, so removed and one
complete set to the successor so appointed. A copy of such instrument shall be
delivered to the Certificateholders, the Certificate Insurer and each Servicer
by the Depositor. In addition, if the Trustee has knowledge that the Trust
Administrator has breached any of its duties under this Agreement, the Trustee,
with the consent of the Certificate Insurer, may remove the Trust Administrator
in the same manner as provided in the prior sentence. For purposes of this
Section, the Trustee shall not be deemed to have knowledge of a breach by the
Trust Administrator of any of its duties hereunder, unless a Responsible Officer
of the Trustee, assigned to and working in the Trustee's Corporate Trust Office
has actual knowledge thereof or unless written notice of any event which is in
fact such a breach is received by the Trustee, and such notice references the
Certificates, the Trust Fund or this Agreement.
Any resignation or removal of the Trustee or the Trust
Administrator and appointment of a successor trustee or trust administrator, as
the case may be, pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee or
trust administrator as provided in Section 8.08. Notwithstanding the foregoing,
in the event the Trust Administrator advises the Trustee that it is unable to
continue to perform its obligations pursuant to the terms of this Agreement
prior to the appointment of a successor, the Trustee shall be obligated to
perform such obligations until a new trust administrator is appointed. Such
performance shall be without prejudice to any claim by a party hereto or
beneficiary hereof resulting from the Trust Administrator's breach of its
obligations hereunder.
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SECTION 8.08. Successor Trustee or Trust Administrator.
Any successor trustee or trust administrator appointed as
provided in Section 8.07 shall execute, acknowledge and deliver to the
Depositor, the Certificate Insurer, the Trustee or the Trust Administrator, as
applicable, and its predecessor trustee or trust administrator an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor trustee or trust administrator shall become effective and
such successor trustee or trust administrator, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee or trust administrator herein. The predecessor trustee or trust
administrator shall deliver to the successor trustee or trust administrator all
Mortgage Files and related documents and statements to the extent held by it
hereunder, as well as all moneys, held by it hereunder, and the Depositor and
the predecessor trustee or trust administrator shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee or trust
administrator all such rights, powers, duties and obligations.
No successor trustee or trust administrator shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee or trust administrator shall be eligible under the
provisions of Section 8.06 and the appointment of such successor trustee or
trust administrator shall not result in a downgrading of any Class of
Certificates by either Rating Agency, as evidenced by a letter from each Rating
Agency.
Upon acceptance of appointment by a successor trustee or trust
administrator as provided in this Section, the Depositor shall mail notice of
the succession of such trustee or trust administrator hereunder to the
Certificate Insurer and to all Holders of Certificates at their addresses as
shown in the Certificate Register. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee or trust
administrator, the successor trustee or trust administrator shall cause such
notice to be mailed at the expense of the Depositor.
Notwithstanding anything to the contrary contained herein, so
long as no Certificate Insurer Default has occurred and is continuing, the
appointment of any successor trustee or trust administrator pursuant to any
provision of this Agreement will be subject to the prior written consent of the
Certificate Insurer.
SECTION 8.09. Merger or Consolidation of Trustee or Trust
Administrator.
Any corporation or association into which either the Trustee
or the Trust Administrator may be merged or converted or with which it may be
consolidated or any corporation or association resulting from any merger,
conversion or consolidation to which the Trustee or the Trust Administrator, as
the case may be, shall be a party, or any corporation or association succeeding
to the business of the Trustee or the Trust Administrator, as applicable, shall
be the successor of the Trustee or the Trust Administrator, as the case may be,
hereunder, provided such corporation or association shall be eligible under the
provisions of Section 8.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
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SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of REMIC I or property securing the same may at the time be located, the
Trustee shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Trustee to act as co-trustee or
co-trustees, jointly with the Trustee or separate trustee or separate trustees,
of all or any part of REMIC I, and to vest in such Person or Persons, in such
capacity, such title to REMIC I, or any part thereof, and, subject to the other
provisions of this Section 8.10, such powers, duties, obligations, rights and
trusts as the Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed by the Trustee (whether as
Trustee hereunder or as successor to a defaulting Servicer hereunder), the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to REMIC I or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the direction
of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VIII. Each separate trustee and co-trustee, upon
its acceptance of the trust conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee, or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee to the extent permitted by law, without the appointment
of a new or successor trustee or co-trustee.
SECTION 8.11. Appointment of Office or Agency.
The Trust Administrator will appoint an office or agency in
the City of St. Paul, Minnesota where the Certificates may be surrendered for
registration of transfer or exchange, and presented for final distribution, and
where notices and demands to or upon the Trust Administrator in respect of the
Certificates and this Agreement may be served.
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SECTION 8.12. Representations and Warranties.
Each of the Trustee and the Trust Administrator hereby
represents and warrants to each Servicer, the Depositor, the Trustee or the
Trust Administrator, as applicable, and the Certificate Insurer, as of the
Closing Date, that:
(i) it is a national banking association duly organized,
validly existing and in good standing under the laws of the United
States of America.
(ii) The execution and delivery of this Agreement by it, and
the performance and compliance with the terms of this Agreement by it,
will not violate its articles of association or bylaws or constitute a
default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any
material agreement or other instrument to which it is a party or which
is applicable to it or any of its assets.
(iii) It has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this Agreement,
and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a valid, legal and
binding obligation of it, enforceable against it in accordance with the
terms hereof, subject to (A) applicable bankruptcy, insolvency,
receivership, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally, and (B) general principles
of equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law.
(v) It is not in violation of, and its execution and delivery
of this Agreement and its performance and compliance with the terms of
this Agreement will not constitute a violation of, any law, any order
or decree of any court or arbiter, or any order, regulation or demand
of any federal, state or local governmental or regulatory authority,
which violation, in its good faith and reasonable judgment, is likely
to affect materially and adversely either the ability of it to perform
its obligations under this Agreement or its financial condition.
(vi) No litigation is pending or, to the best of its
knowledge, threatened against it, which would prohibit it from entering
into this Agreement or, in its good faith reasonable judgment, is
likely to materially and adversely affect either the ability of it to
perform its obligations under this Agreement or its financial
condition.
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ARTICLE IX
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
SECTION 9.01. Rights of the Certificate Insurer To Exercise
Rights of Class A Certificateholders.
Each of the Depositor, the Servicers, the Trust Administrator
and the Trustee, and, by accepting its Certificate, each Class A
Certificateholder, agrees that unless a Certificate Insurer Default has occurred
and is continuing, the Certificate Insurer shall have the right to exercise all
rights of the Class A Certificateholders under this Agreement (except as
provided in clause (i) of the second paragraph of Section 12.01) without any
further consent of the Class A Certificateholders, including, without
limitation:
(a) the right to direct foreclosures upon Mortgage Loans upon
failure of the related Servicer to do so;
(b) the right to require the Seller or the Depositor to
repurchase or substitute for Mortgage Loans pursuant to Section 2.03;
(c) the right to give notices of breach or to terminate the
rights and obligations of either Servicer as Servicer pursuant to
Section 7.01;
(d) the right to direct the actions of the Trustee and the
Trust Administrator during the continuance of a Servicer Event of
Default pursuant to Sections 7.01 and 7.02;
(e) the right to consent to or direct any waivers of Servicer
Events of Default pursuant to Section 7.04;
(f) the right to direct the Trustee and the Trust
Administrator to investigate certain matters pursuant to Section
8.02(a)(v); and
(g) the right to remove the Trustee or the Trust Administrator
pursuant to Section 8.07 hereof.
In addition, each Class A Certificateholder agrees that,
unless a Certificate Insurer Default has occurred and is continuing, the rights
specifically set forth above may be exercised by the Class A Certificateholders
only with the prior written consent of the Certificate Insurer.
SECTION 9.02. Trustee and the Trust Administrator To Act
Solely with Consent of the Certificate Insurer.
Unless a Certificate Insurer Default has occurred and is
continuing, neither the Trustee nor the Trust Administrator shall:
(a) agree to any amendment pursuant to Section 12.01; or
(b) undertake any litigation pursuant to Section
8.02(a)(iii);
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without the prior written consent of the Certificate Insurer which consent shall
not be unreasonably withheld.
SECTION 9.03. Trust Fund and Accounts Held for Benefit of the
Certificate Insurer.
The Trustee and the Trust Administrator shall hold the Trust
Fund and the Mortgage Files for the benefit of the Certificateholders and the
Certificate Insurer and all references in this Agreement (including, without
limitation, in Sections 2.01 and 2.02) and in the Certificates to the benefit of
Holders of the Certificates shall be deemed to include the Certificate Insurer.
Each of the Trustee and the Trust Administrator shall cooperate in all
reasonable respects with any reasonable request by the Certificate Insurer for
action to preserve or enforce the Certificate Insurer's rights or interests
under this Agreement and the Certificates.
Each Servicer hereby acknowledges and agrees that it shall
service and administer the related Mortgage Loans and any REO Properties, and
shall maintain the Collection Account and any REO Account, for the benefit of
the Certificateholders and for the benefit of the Certificate Insurer, and all
references in this Agreement (including, without limitation, in Sections 3.01
and 3.10) to the benefit of or actions on behalf of the Certificateholders shall
be deemed to include the Certificate Insurer. Unless a Certificate Insurer
Default has occurred and is continuing, neither Servicer shall terminate any
Sub- Servicing Agreements without cause without the prior consent of the
Certificate Insurer. Unless a Certificate Insurer Default has occurred and is
continuing, neither Servicer nor the Depositor shall undertake any litigation
pursuant to Section 6.03 (other than litigation to enforce their respective
rights hereunder) without the prior consent of the Certificate Insurer.
SECTION 9.04. Claims Upon the Policy; Policy Payments Account.
(a) If, by the close of business on the third Business Day
prior to a Distribution Date, the Trust Administrator determines that a
Deficiency Amount for any Distribution Date is greater than zero, then the Trust
Administrator shall give notice to the Certificate Insurer by telephone or
telecopy of the amount of such Deficiency Amount. Such notice of such Deficiency
Amount shall be confirmed in writing in the form set forth as Exhibit A to the
Endorsement of the Policy, to the Certificate Insurer and the Fiscal Agent (as
defined in the Policy), if any, at or before 10:00 a.m. New York time on the
second Business Day prior to such Distribution Date. Following Receipt (as
defined in the Policy) by the Certificate Insurer of such notice in such form,
the Certificate Insurer or the Fiscal Agent will pay any amount payable under
the Policy on the later to occur of (i) 12:00 noon New York time on the second
Business Day following such receipt and (ii) 12:00 noon New York time on the
Distribution Date to which such deficiency relates, as provided in the
Endorsement to the Policy.
(b) The Trust Administrator shall establish a separate special
purpose trust account for the benefit of Holders of the Class A Certificates and
the Certificate Insurer referred to herein as the "Policy Payments Account" over
which the Trust Administrator shall have exclusive control and sole right of
withdrawal. The Trust Administrator shall deposit any amount paid under the
Policy in the Policy Payments Account and distribute such amount only for
purposes of payment to Holders of Class A Certificates of the Guaranteed
Distribution for which a claim was made, and such amount may not be applied to
satisfy any costs, expenses or liabilities of either Servicer, the Master
Servicer, the Trustee, the Trust Administrator or the Trust Fund. Amounts paid
under the Policy shall be transferred to the Distribution Account in accordance
with the next succeeding paragraph and disbursed by the Trust Administrator to
Holders of Class A Certificates in accordance with Section 4.01(c) or Section
10.01, as
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applicable. It shall not be necessary for such payments to be made by checks or
wire transfers separate from the checks or wire transfers used to pay the
Guaranteed Distribution with other funds available to make such payment.
However, the amount of any payment of principal of or interest on the Class A
Certificates to be paid from funds transferred from the Policy Payments Account
shall be noted as provided in paragraph (c) below in the Certificate Register
and in the statement to be furnished to Holders of the Class A Certificates
pursuant to Section 4.02. Funds held in the Policy Payments Account shall not be
invested.
On any Distribution Date with respect to which a claim has
been made under the Policy, the amount of any funds received by the Trust
Administrator as a result of any claim under the Policy, to the extent required
to make the Guaranteed Distribution on such Distribution Date, shall be
withdrawn from the Policy Payments Account and deposited in the Distribution
Account and applied by the Trust Administrator, together with the other funds to
be withdrawn from the Distribution Account pursuant to Section 4.01(c) or
Section 10.01, as applicable, directly to the payment in full of the Guaranteed
Distribution due on the Class A Certificates. Funds received by the Trust
Administrator as a result of any claim under the Policy shall be deposited by
the Trust Administrator in the Policy Payments Account and used solely for
payment to the Holders of the Class A Certificates and may not be applied to
satisfy any costs, expenses or liabilities of the Servicers, the Trustee, the
Trust Administrator or the Trust Fund. Any funds remaining in the Policy
Payments Account on the first Business Day following a Distribution Date shall
be remitted to the Certificate Insurer, pursuant to the instructions of the
Certificate Insurer, by the end of such Business Day.
(c) The Trust Administrator shall keep a complete and accurate
record of the amount of interest and principal paid in respect of any Class A
Certificate from moneys received under the Policy. The Certificate Insurer shall
have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior notice to the Trust Administrator.
(d) The Trustee and the Trust Administrator shall promptly
notify the Certificate Insurer and Fiscal Agent of any proceeding or the
institution of any action, of which a Responsible Officer of the Trustee or the
Trust Administrator, as applicable, has actual knowledge, seeking the avoidance
as a preferential transfer under applicable bankruptcy, insolvency, receivership
or similar law (a "Preference Claim") of any Guaranteed Distribution made with
respect to the Class A Certificates. Each Holder of the Class A Certificates, by
its purchase of such Certificates, the Servicers, the Trust Administrator and
the Trustee hereby agree that the Certificate Insurer (so long as no Certificate
Insurer Default has occurred and is continuing) may at any time during the
continuation of any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim, including, without limitation, (i) the
direction of any appeal of any order relating to such Preference Claim and (ii)
the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Certificate
Insurer shall be subrogated to the rights of the Master Servicer, the Servicers,
the Trustee, the Trust Administrator and each Holder of the Class A Certificates
in the conduct of any such Preference Claim, including, without limitation, all
rights of any party to an adversary proceeding action with respect to any court
order issued in connection with any such Preference Claim.
SECTION 9.05 Effect of Payments by the Certificate Insurer;
Subrogation.
Anything herein to the contrary notwithstanding, any payment
with respect to principal of or interest on any of the Class A Certificates
which is made with moneys received pursuant to the terms of the Policy shall not
be considered payment of such Class A Certificates from the Trust Fund and shall
not result in the payment of or the provision for the payment of the principal
of or interest on such
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Certificates within the meaning of Section 4.01. The Depositor, the Master
Servicer, each Servicer, the Trustee and the Trust Administrator acknowledge,
and each Holder by its acceptance of a Class A Certificate agrees, that without
the need for any further action on the part of the Certificate Insurer, the
Depositor, the Servicers, the Master Servicer, the Trustee or the Trust
Administrator (a) to the extent the Certificate Insurer makes payments, directly
or indirectly, on account of principal of or interest on any Class A
Certificates to the Holders of such Certificates, the Certificate Insurer will
be fully subrogated to the rights of such Holders to receive such principal and
interest from the Trust Fund and (b) the Certificate Insurer shall be paid such
principal and interest but only from the sources and in the manner provided
herein for the payment of such principal and interest.
The Trustee, the Trust Administrator, the Master Servicer and
the Servicers shall cooperate in all respects with any reasonable request by the
Certificate Insurer for action to preserve or enforce the Certificate Insurer's
rights or interests under this Agreement without limiting the rights or
affecting the interests of the Holders as otherwise set forth herein.
SECTION 9.06. Notices to the Certificate Insurer.
All notices, statements, reports, certificates or opinions
required by this Agreement to be sent to any other party hereto or to any of the
Certificateholders shall also be sent to the Certificate Insurer.
SECTION 9.07. Third-Party Beneficiary.
The Certificate Insurer shall be a third-party beneficiary of
this Agreement, entitled to enforce the provisions hereof as if a party hereto.
SECTION 9.08. Trust Administrator to Hold the Policy.
The Trust Administrator, on behalf of the Trustee, will hold
the Policy in trust as agent for the Holders of the Class A Certificates for the
purpose of making claims thereon and distributing the proceeds thereof. Upon the
later of (i) the date upon which the Certificate Principal Balances of the Class
A Certificates have been reduced to zero and all Guaranteed Distributions have
been made and (ii) the date the Term of the Policy (as defined in the Policy)
ends, the Trust Administrator, on behalf of the Trustee, shall surrender the
Policy to the Certificate Insurer for cancellation. Neither the Policy nor the
amounts paid on the Policy will constitute part of the Trust Fund or assets of
any REMIC created by this Agreement. Each Holder of Class A Certificates, by
accepting its Certificates, appoints the Trustee and the Trust Administrator as
attorneys-in-fact for the purpose of making claims on the Policy.
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ARTICLE X
TERMINATION
SECTION 10.01 Termination Upon Repurchase or Liquidation of
All Mortgage Loans.
(a) Subject to Section 10.02, the respective obligations and
responsibilities under this Agreement of the Depositor, the Servicers, the
Master Servicer, the Trustee and the Trust Administrator (other than the
obligations of the Servicers to the Trustee and the Trust Administrator pursuant
to Section 8.05 and of the Servicers to provide for and the Trust Administrator
to make payments in respect of the REMIC I Regular Interests, the REMIC II
Regular Interests or the Classes of Certificates as hereinafter set forth) shall
terminate upon payment to the Certificateholders and the deposit of all amounts
held by or on behalf of the Trustee and required hereunder to be so paid or
deposited on the Distribution Date coinciding with or following the earlier to
occur of (i) the purchase by the Terminator (as defined below) of all Mortgage
Loans and each REO Property remaining in REMIC I and (ii) the final payment or
other liquidation (or any advance with respect thereto) of the last Mortgage
Loan or REO Property remaining in REMIC I; provided, however, that in no event
shall the trust created hereby continue beyond the expiration of 21 years from
the death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof. Subject to Section 3.11 hereof, the purchase by the Terminator of all
Mortgage Loans and each REO Property remaining in REMIC I shall be at a price
(the "Termination Price") equal to the greater of (A) the aggregate Purchase
Price of all the Mortgage Loans included in REMIC I, plus the appraised value of
each REO Property, if any, included in REMIC I, such appraisal to be conducted
by an appraiser mutually agreed upon by the Terminator and the Trustee in their
reasonable discretion (and approved by the Certificate Insurer in its reasonable
discretion) and (B) the aggregate fair market value of all of the assets of
REMIC I (as determined by the Terminator, the Certificate Insurer (to the extent
the Certificate Insurer is not the Terminator) and the Trustee, as of the close
of business on the third Business Day next preceding the date upon which notice
of any such termination is furnished to Certificateholders pursuant to the third
paragraph of this Section 10.01); provided, however, that in the event the
Majority Class CE Certificateholder is the Terminator, and subject to Section
3.11 hereof, the purchase by the Majority Class CE Certificateholder of all
Mortgage Loans and each REO Property remaining in REMIC I shall be at a price
equal to the greater of: (i) the amount designated in clause (A) above or (ii)
the lesser of (x) the sum of the amount designated in clause (A) above and any
amounts due under the Insurance Agreement and (y) the amount designated in
clause (B) above.
(b) The Majority Class CE Certificateholder shall have the
right and, to the extent the Majority Class CE Certificateholder fails to
exercise such right, the Certificate Insurer shall have the right and, to the
extent neither the Majority Class CE Certificateholder nor the Certificate
Insurer exercises such right, the Master Servicer shall have the right (the
party exercising such right, the "Terminator"), to purchase all of the Mortgage
Loans and each REO Property remaining in REMIC I pursuant to clause (i) of the
preceding paragraph no later than the Determination Date in the month
immediately preceding the Distribution Date on which the Certificates will be
retired; provided, however, that the Terminator may elect to purchase all of the
Mortgage Loans and each REO Property remaining in REMIC I pursuant to clause (i)
above only if the aggregate Stated Principal Balance of the Mortgage Loans and
each REO Property remaining in the Trust Fund at the time of such election is
reduced to less than 10%, in the event the Majority Class CE Certificateholder
is the Terminator, or 5%, in the event the Master Servicer or the Certificate
Insurer is the Terminator, in each case of the aggregate Stated Principal
Balance of the
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Mortgage Loans as of the Cut-off Date. By acceptance of the Class R-I
Certificates, the Holder of the Class R-I Certificates agrees, in connection
with any termination hereunder, to assign and transfer any amounts in excess of
par, and to the extent received in respect of such termination, to pay any such
amounts to the Holders of the Class CE Certificates.
(c) Notice of the liquidation of the REMIC I Regular Interests
shall be given promptly by the Trust Administrator by letter to
Certificateholders and the Certificate Insurer mailed (a) in the event such
notice is given in connection with the purchase of the Mortgage Loans and each
REO Property by the Terminator, not earlier than the 15th day and not later than
the 25th day of the month next preceding the month of the final distribution on
the Certificates or (b) otherwise during the month of such final distribution on
or before the Determination Date in such month, in each case specifying (i) the
Distribution Date upon which the Trust Fund will terminate and the final payment
in respect of the REMIC I Regular Interests, the REMIC II Regular Interests and
the Certificates will be made upon presentation and surrender of the related
Certificates at the office of the Trust Administrator therein designated, (ii)
the amount of any such final payment, (iii) that no interest shall accrue in
respect of the REMIC I Regular Interests, the REMIC II Regular Interests or the
Certificates from and after the Interest Accrual Period relating to the final
Distribution Date therefor and (iv) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Trust
Administrator. In the event such notice is given in connection with the purchase
of all of the Mortgage Loans and each REO Property remaining in REMIC I by the
Terminator, the Terminator shall deliver to the Trust Administrator for deposit
in the Distribution Account not later than the last Business Day of the month
next preceding the month of the final distribution on the Certificates an amount
in immediately available funds equal to the above-described purchase price. The
Trust Administrator shall remit to each Servicer from such funds deposited in
the Distribution Account (i) any amounts which the related Servicer would be
permitted to withdraw and retain from the Collection Account pursuant to Section
3.11 and (ii) any other amounts otherwise payable by the Trust Administrator to
the related Servicer from amounts on deposit in the Distribution Account
pursuant to the terms of this Agreement, in each case prior to making any final
distributions pursuant to Section 10.01(d) below. Upon certification to the
Trust Administrator by a Servicing Officer (a copy of which certification shall
be delivered to the Certificate Insurer) of the making of such final deposit,
the Trust Administrator shall promptly release to the Terminator the Mortgage
Files for the remaining Mortgage Loans, and the Trustee shall execute all
assignments, endorsements and other instruments necessary to effectuate such
transfer.
(d) Upon presentation of the Certificates by the
Certificateholders on the final Distribution Date, the Trust Administrator shall
distribute to each Certificateholder so presenting and surrendering its
Certificates the amount otherwise distributable on such Distribution Date in
accordance with Section 4.01 in respect of the Certificates so presented and
surrendered. Any funds not distributed to any Holder or Holders of Certificates
being retired on such Distribution Date because of the failure of such Holder or
Holders to tender their Certificates shall, on such date, be set aside and held
in trust and credited to the account of the appropriate non-tendering Holder or
Holders. If any Certificates as to which notice has been given pursuant to this
Section 10.01 shall not have been surrendered for cancellation within six months
after the time specified in such notice, the Trust Administrator shall mail a
second notice to the remaining non-tendering Certificateholders to surrender
their Certificates for cancellation in order to receive the final distribution
with respect thereto. If within one year after the second notice all such
Certificates shall not have been surrendered for cancellation, the Trust
Administrator shall, directly or through an agent, (i) mail a final notice to
the remaining non-tendering Certificateholders concerning surrender of their
Certificates and (ii) pay to the Certificate Insurer any amount of such funds
which were paid by the Certificate Insurer under the Policy but shall continue
to hold any remaining funds for the benefit of non-tendering Certificateholders,
and all liability of the Certificate Insurer with respect to such
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funds shall thereupon cease. The costs and expenses of maintaining the funds in
trust and of contacting such Certificateholders shall be paid out of the assets
remaining in the trust funds. If within one year after the final notice any such
Certificates shall not have been surrendered for cancellation, the Trust
Administrator shall pay to Salomon Smith Barney Inc. all such amounts, and all
rights of non-tendering Certificateholders in or to such amounts shall thereupon
cease. No interest shall accrue or be payable to any Certificateholder on any
amount held in trust by the Trust Administrator as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 10.01. Any such amounts held in trust by
the Trust Administrator shall be held in an Eligible Account and the Trust
Administrator may direct any depository institution maintaining such account to
invest the funds in one or more Permitted Investments. All income and gain
realized from the investment of funds deposited in such accounts held in trust
by the Trust Administrator shall be for the benefit of the Trust Administrator;
provided, however, that the Trust Administrator shall deposit in such account
the amount of any loss of principal incurred in respect of any such Permitted
Investment made with funds in such accounts immediately upon the realization of
such loss.
Immediately following the deposit of funds in trust hereunder
in respect of the Certificates, the Trust Fund shall terminate.
SECTION 10.02 Additional Termination Requirements.
(a) In the event that the Terminator purchases all the
Mortgage Loans and each REO Property or the final payment on or other
liquidation of the last Mortgage Loan or REO Property remaining in REMIC I
pursuant to Section 10.01 or Section 10.02, the Trust Fund shall be terminated
in accordance with the following additional requirements:
(i) The Trustee shall specify the first day in the
90-day liquidation period in a statement attached to REMIC
I's, REMIC II's and REMIC III's final Tax Return pursuant to
Treasury regulation Section 1.860F-1 and shall satisfy all
requirements of a qualified liquidation under Section 860F of
the Code and any regulations thereunder, as evidenced by an
Opinion of Counsel obtained at the expense of the Terminator;
(ii) During such 90-day liquidation period and, at or
prior to the time of making of the final payment on the
Certificates, the Trustee shall sell all of the assets of
REMIC I to the Terminator for cash; and
(iii) At the time of the making of the final payment on
the Certificates, the Trust Administrator shall distribute or
credit, or cause to be distributed or credited, to the Holders
of the Residual Certificates all cash on hand in the Trust
Fund (other than cash retained to meet claims), and the Trust
Fund shall terminate at that time.
(b) At the expense of the requesting Terminator (or, if the
Trust Fund is being terminated as a result of the occurrence of the event
described in clause (ii) of the first paragraph of Section 10.01, at the expense
of the Trust Administrator without the right of reimbursement from the Trust
Fund), the Trust Administrator shall prepare or cause to be prepared the
documentation required in connection with the adoption of a plan of liquidation
of each of REMIC I , REMIC II and REMIC III pursuant to this Section 10.02.
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(c) By their acceptance of Certificates, the Holders thereof
hereby agree to authorize the Trustee to specify the 90-day liquidation period
for each of REMIC I, REMIC II and REMIC III, which authorization shall be
binding upon all successor Certificateholders.
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ARTICLE XI
REMIC PROVISIONS
SECTION 11.01. REMIC Administration.
(a) The Trustee shall elect to treat each of REMIC I, REMIC II
and REMIC III as a REMIC under the Code and, if necessary, under applicable
state law. Each such election will be made by the Master Servicer on behalf of
the Trustee on Form 1066 or other appropriate federal tax or information return
or any appropriate state return for the taxable year ending on the last day of
the calendar year in which the Certificates are issued. For the purposes of the
REMIC election in respect of REMIC I, the REMIC I Regular Interests shall be
designated as the Regular Interests in REMIC I and the Class R-I Certificates
shall be designated as the Residual Interests in REMIC I. The REMIC II Regular
Interests shall be designated as the Regular Interests in REMIC II and the Class
R-II Certificates shall be designated as the Residual Interests in REMIC II. The
Class A Certificates, the Class CE Certificates and the Class P Certificates
shall be designated as the Regular Interests in REMIC III and the Class R-III
Certificates shall be designated as the Residual Interests in REMIC III. Neither
the Trustee nor the Trust Administrator shall permit the creation of any
"interests" in REMIC I, REMIC II or REMIC III (within the meaning of Section
860G of the Code) other than the REMIC I Regular Interests, the REMIC II Regular
Interests and the interests represented by the Certificates.
(b) The Closing Date is hereby designated as the "Startup Day"
of REMIC I, REMIC II and REMIC III within the meaning of Section 860G(a)(9) of
the Code.
(c) The Master Servicer shall pay out of its own funds,
without any right of reimbursement, any and all expenses relating to any tax
audit of the Trust Fund (including, but not limited to, any professional fees or
any administrative or judicial proceedings with respect to any REMIC I, REMIC II
or REMIC III that involve the Internal Revenue Service or state tax
authorities), other than the expense of obtaining any tax related Opinion of
Counsel except as specified herein. The Master Servicer, as agent for all of
REMIC I's, REMIC II's and REMIC III's tax matters person shall (i) act on behalf
of the Trust Fund in relation to any tax matter or controversy involving any of
REMIC I, REMIC II or REMIC III and (ii) represent the Trust Fund in any
administrative or judicial proceeding relating to an examination or audit by any
governmental taxing authority with respect thereto. The holder of the largest
Percentage Interest of each Class of Residual Certificates shall be designated,
in the manner provided under Treasury regulations section 1.860F-4(d) and
Treasury regulations section 301.6231(a)(7)-1, as the tax matters person of the
related REMIC created hereunder. By their acceptance thereof, the holder of the
largest Percentage Interest of each Class of Residual Certificates hereby agrees
to irrevocably appoint the Master Servicer or an Affiliate as its agent to
perform all of the duties of the tax matters person for the Trust Fund.
(d) The Master Servicer shall prepare and the Trustee shall
sign and the Trust Administrator shall file all of the Tax Returns in respect of
each REMIC created hereunder. The expenses of preparing and filing such returns
shall be borne by the Master Servicer without any right of reimbursement
therefor.
(e) The Master Servicer shall perform on behalf of each of
REMIC I, REMIC II and REMIC III all reporting and other tax compliance duties
that are the responsibility of such REMIC under the Code, the REMIC Provisions
or other compliance guidance issued by the Internal Revenue Service or any state
or local taxing authority. Among its other duties, as required by the Code, the
REMIC Provisions
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or other such compliance guidance, the Master Servicer shall provide (i) to any
Transferor of a Residual Certificate such information as is necessary for the
application of any tax relating to the transfer of a Residual Certificate to any
Person who is not a Permitted Transferee, (ii) to the Certificateholders such
information or reports as are required by the Code or the REMIC Provisions
including reports relating to interest, original issue discount and market
discount or premium (using the Prepayment Assumption as required) and (iii) to
the Internal Revenue Service the name, title, address and telephone number of
the person who will serve as the representative of REMIC I, REMIC II and REMIC
III. The Depositor shall provide or cause to be provided to the Master Servicer,
within ten (10) days after the Closing Date, all information or data that the
Master Servicer reasonably determines to be relevant for tax purposes as to the
valuations and issue prices of the Certificates, including, without limitation,
the price, yield, prepayment assumption and projected cash flow of the
Certificates.
(f) The Master Servicer, each Servicer, the Trustee and the
Trust Administrator shall take such action and shall cause each REMIC created
hereunder to take such action as shall be necessary to create or maintain the
status thereof as a REMIC under the REMIC Provisions. The Master Servicer, the
Servicers, the Trustee and the Trust Administrator shall not take any action,
cause the Trust Fund to take any action or fail to take (or fail to cause to be
taken) any action that, under the REMIC Provisions, if taken or not taken, as
the case may be, could (i) endanger the status of REMIC I, REMIC II or REMIC III
as a REMIC or (ii) result in the imposition of a tax upon the Trust Fund
(including but not limited to the tax on prohibited transactions as defined in
Section 860F(a)(2) of the Code and the tax on contributions to a REMIC set forth
in Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event")
unless the Trustee and the Trust Administrator have received an Opinion of
Counsel, addressed to the Trustee, the Trust Administrator and the Certificate
Insurer (at the expense of the party seeking to take such action but in no event
at the expense of the Trust Administrator or the Trustee) to the effect that the
contemplated action will not, with respect to any of REMIC I, REMIC II or REMIC
III, endanger such status or result in the imposition of such a tax, nor shall
the Master Servicer or the Servicers take or fail to take any action (whether or
not authorized hereunder) as to which the Trustee or the Trust Administrator has
advised it in writing that it has received an Opinion of Counsel to the effect
that an Adverse REMIC Event could occur with respect to such action; provided
that the Master Servicer and the Servicers may conclusively rely on such Opinion
of Counsel and shall incur no liability for its action or failure to act in
accordance with such Opinion of Counsel. In addition, prior to taking any action
with respect to any of REMIC I, REMIC II or REMIC III or the respective assets
of each, or causing REMIC I, REMIC II or REMIC III to take any action, which is
not contemplated under the terms of this Agreement, the Master Servicer and the
Servicers will consult with the Trustee and the Trust Administrator or its
designee, in writing, with respect to whether such action could cause an Adverse
REMIC Event to occur with respect to REMIC I, REMIC II or REMIC III, and neither
the Master Servicer nor the Servicers shall take any such action or cause REMIC
I, REMIC II or REMIC III to take any such action as to which the Trustee or the
Trust Administrator has advised it in writing that an Adverse REMIC Event could
occur; provided that the Master Servicer and the Servicers may conclusively rely
on such writing and shall incur no liability for its action or failure to act in
accordance with such writing. The Trust Administrator and the Trustee may
consult with counsel to make such written advice, and the cost of same shall be
borne by the party seeking to take the action not permitted by this Agreement,
but in no event shall such cost be an expense of the Trustee or the Trust
Administrator, as applicable. At all times as may be required by the Code, the
Trust Administrator, the Trustee, the Master Servicer, or each Servicer will
ensure that substantially all of the assets of both REMIC I and REMIC II will
consist of "qualified mortgages" as defined in Section 860G(a)(3) of the Code
and "permitted investments" as defined in Section 860G(a)(5) of the Code, to the
extent such obligations are within such party's control and not otherwise
inconsistent with the terms of this Agreement.
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(g) In the event that any tax is imposed on "prohibited
transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of
the Code, on the "net income from foreclosure property" of such REMIC as defined
in Section 860G(c) of the Code, on any contributions to any such REMIC after the
Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax
is imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the Trust Administrator pursuant to Section
11.03 hereof, if such tax arises out of or results from a breach by the Trust
Administrator of any of its obligations under this Article XI, (ii) to the
Trustee pursuant to Section 11.03 hereof, if such tax arises out of or results
from a breach by the Trustee of any of its obligations under this Article XI,
(iii) to the Master Servicer or the related Servicer pursuant to Section 11.03
hereof, if such tax arises out of or results from a breach by the Master
Servicer or such Servicer of any of its obligations under Article III or this
Article XI, or (iv) against amounts on deposit in the Distribution Account and
shall be paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing
April 15, 1999, the Master Servicer and each Servicer shall deliver to each
Rating Agency an Officer's Certificate of the Master Servicer and each Servicer
stating the Master Servicer's or such Servicer's compliance with this Article
XI.
(i) The Master Servicer shall, for federal income tax
purposes, maintain books and records with respect to each of REMIC I, REMIC II
and REMIC III on a calendar year and on an accrual basis.
(j) Following the Startup Day, the Master Servicer, the
Servicers, the Trustee and the Trust Administrator shall not accept any
contributions of assets to any of REMIC I, REMIC II or REMIC III other than in
connection with any Qualified Substitute Mortgage Loan delivered in accordance
with Section 2.03 unless it shall have received an Opinion of Counsel to the
effect that the inclusion of such assets in the Trust Fund will not cause the
related REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding or subject such REMIC to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances.
(k) None of the Trustee, the Trust Administrator, the Master
Servicer or the Servicers shall enter into any arrangement by which REMIC I,
REMIC II or REMIC III will receive a fee or other compensation for services nor
permit either REMIC to receive any income from assets other than "qualified
mortgages" as defined in Section 860G(a)(3) of the Code or "permitted
investments" as defined in Section 860G(a)(5) of the Code.
SECTION 11.02. Prohibited Transactions and Activities.
None of the Depositor, the Master Servicer, the Servicers, the
Trust Administrator or the Trustee shall sell, dispose of or substitute for any
of the Mortgage Loans (except in connection with (i) the foreclosure of a
Mortgage Loan, including but not limited to, the acquisition or sale of a
Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy
of REMIC I, (iii) the termination of REMIC I pursuant to Article X of this
Agreement, (iv) a substitution pursuant to Article II of this Agreement or (v) a
purchase of Mortgage Loans pursuant to Article II or III of this Agreement), nor
acquire any assets for any of REMIC I, REMIC II or REMIC III (other than REO
Property acquired in respect of a defaulted Mortgage Loan), nor sell or dispose
of any investments in the Collection Account or the Distribution Account for
gain, nor accept any contributions to any of REMIC I, REMIC II or REMIC III
after the Closing Date (other than a Qualified Substitute Mortgage Loan
delivered in accordance with Section 2.03), unless it has received an Opinion of
Counsel, addressed to the Trustee, the Trust
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Administrator and the Certificate Insurer (at the expense of the party seeking
to cause such sale, disposition, substitution, acquisition or contribution but
in no event at the expense of the Trustee or the Trust Administrator) that such
sale, disposition, substitution, acquisition or contribution will not (a) affect
adversely the status of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
cause any of REMIC I, REMIC II or REMIC III to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 11.03. Master Servicer, Servicers, Trustee and Trust
Administrator Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the
Depositor, the Certificate Insurer, the Servicers and the Trust Administrator
for any taxes and costs including, without limitation, any reasonable attorneys
fees imposed on or incurred by the Trust Fund, the Depositor, the Certificate
Insurer, the Servicers or the Trust Administrator, as a result of a breach of
the Trustee's covenants set forth
in this Article XI.
(b) The Trust Administrator agrees to indemnify the Trust
Fund, the Depositor, the Certificate Insurer, the Servicers and the Trustee for
any taxes and costs including, without limitation, any reasonable attorneys fees
imposed on or incurred by the Trust Fund, the Depositor, the Certificate
Insurer, the Servicers or the Trustee, as a result of a breach of the Trust
Administrator's covenants set forth in this Article XI.
(b) The Master Servicer and each Servicer, severally, agree to
indemnify the Trust Fund, the Depositor, the Certificate Insurer, the Trustee,
the Master Servicer, the other Servicer and the Trust Administrator for any
taxes and costs including, without limitation, any reasonable attorneys' fees
imposed on or incurred by the Trust Fund, the Depositor, the Certificate
Insurer, the Trustee, the Master Servicer, the other Servicer or the Trust
Administrator, as a result of a breach of the Master Servicer's or such
Servicer's covenants set forth in Article III or this Article XI.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Amendment.
This Agreement may be amended with the consent of the
Certificate Insurer from time to time by the Depositor, the Servicers, the
Master Servicer, the Trustee and the Trust Administrator without the consent of
any of the Certificateholders, (i) to cure any ambiguity or defect, (ii) to
correct, modify or supplement any provisions herein (including to give effect to
the expectations of Certificateholders), or (iii) to make any other provisions
with respect to matters or questions arising under this Agreement which shall
not be inconsistent with the provisions of this Agreement, provided that such
action shall not, as evidenced by an Opinion of Counsel delivered to the
Trustee, the Trust Administrator and the Certificate Insurer, adversely affect
in any material respect the interests of any Certificateholder or the
Certificate Insurer, and provided further that such Opinion of Counsel shall not
be necessary if the party seeking such amendment delivers to the Trustee and the
Trust Administrator a letter from each Rating Agency stating that such amendment
would not cause a downgrade or withdrawal of the then current ratings of the
Certificates without regard to the Policy. No amendment shall be deemed to
adversely affect in any material respect the interests of any Certificateholder
who shall have consented thereto, and no Opinion of Counsel shall be required to
address the effect of any such amendment on any such consenting
Certificateholder.
This Agreement may also be amended from time to time by the
Depositor, the Servicers, the Master Servicer, the Trustee and the Trust
Administrator with the consent of the Certificate Insurer and the Holders of
Certificates entitled to at least 66% of the Voting Rights for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certificate, (ii) adversely affect in any
material respect the interests of the Holders of any Class of Certificates in a
manner, other than as described in (i), without the consent of the Holders of
Certificates of such Class evidencing at least 66% of the Voting Rights
allocated to such Class, or (iii) modify the consents required by the
immediately preceding clauses (i) and (ii) without the consent of the
Certificate Insurer and the Holders of all Certificates then outstanding.
Notwithstanding any other provision of this Agreement, for purposes of the
giving or withholding of consents pursuant to this Section 12.01, Certificates
registered in the name of the Depositor, the Master Servicer or either Servicer
or any Affiliate thereof shall be entitled to Voting Rights with respect to
matters affecting such Certificates.
Notwithstanding any contrary provision of this Agreement,
neither the Trustee nor the Trust Administrator shall consent to any amendment
to this Agreement unless it shall have first received an Opinion of Counsel to
the effect that such amendment will not result in the imposition of any tax on
any of REMIC I, REMIC II or REMIC III pursuant to the REMIC Provisions or cause
any of REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC at any time
that any Certificates are outstanding. Any such amendment pursuant to the first
paragraph of this Section 12.01 shall not be deemed to adversely affect in any
material respect the interests of any Certificateholder if such change is
required by the Certificate Insurer, so long as no Certificate Insurer Default
has occurred and is continuing, and the Trustee and the Trust Administrator
receive written confirmation from each Rating Agency that such amendment will
not cause such Rating Agency to reduce the then current rating or any shadow
rating of the affected Certificates.
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Promptly after the execution of any such amendment the Trust
Administrator shall furnish a copy of such amendment to each Certificateholder
and the Certificate Insurer.
It shall not be necessary for the consent of
Certificateholders under this Section 12.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee or the Trust Administrator
may prescribe.
The cost of any Opinion of Counsel to be delivered pursuant to
this Section 12.01 shall be borne by the Person seeking the related amendment,
but in no event shall such Opinion of Counsel be an expense of the Trustee or
Trust Administrator.
Each of the Trustee and the Trust Administrator may, but shall
not be obligated to enter into any amendment pursuant to this Section that
affects its rights, duties and immunities under this Agreement or otherwise.
SECTION 12.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer at the expense of the Certificateholders, but
only upon direction of the Trustee or the Trust Administrator accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and
the same instrument.
SECTION 12.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of any of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the
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continuance thereof, as hereinbefore provided, and unless also the Holders of
Certificates entitled to at least 25% of the Voting Rights shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 15 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatsoever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 12.04. Governing Law.
This Agreement shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
SECTION 12.05. Notices.
All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when received if personally
delivered at or mailed by first class mail, postage prepaid, or by express
delivery service or delivered in any other manner specified herein, to (a) in
the case of the Depositor, ____________________________________________,
Attention: _________________ (telecopy number ______________), or such other
address or telecopy number as may hereafter be furnished to the Master Servicer,
the Servicers, the Trustee, the Trust Administrator and the Certificate Insurer
in writing by the Depositor, (b) in the case of the Master Servicer,
_____________________________________ (telecopy number: ______________), or such
other address or telecopy number as may hereafter be furnished to the Trustee,
the Trust Administrator, the Certificate Insurer, the Servicers and the
Depositor in writing by the Master Servicer, (c) in the case of
__________________________________, Attention: _____________ (telecopy number:
- -------------), or such other address or telecopy number as may hereafter be
furnished to the Trustee, the Trust Administrator, the Certificate Insurer, the
Master Servicer and the Depositor in writing by _______________, (d) in the case
of the Trust Administrator, __________________, Attention: _________________
(telecopy number ____________), or such other address or telecopy number as may
hereafter be furnished to the Servicers, the Master Servicer, the Certificate
Insurer, the Depositor and the Trustee in writing by the Trust Administrator,
(d) in the case of the Trustee, ________________________________, Attention:
____________ (telecopy number ___________), or such other address or telecopy
number as may hereafter be furnished to the Servicers, the Master Servicer, the
Certificate Insurer, the Trust Administrator and the Depositor in writing by the
Trustee and (e) in the case of the Certificate Insurer,
____________________________, Attention: Surveillance Department (telecopy
number ____________ or ___________) or such other address or telecopy number as
may hereafter be furnished to the Trustee, the Trust Administrator, the
Depositor, the Master Servicer and the Servicers in writing by the Certificate
Insurer. In each case in which a notice or other communication to the
Certificate Insurer refers to a Servicer Event of Default or a claim under the
Policy or with respect to which failure on the part of the Certificate Insurer
to respond shall be deemed to constitute consent or
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<PAGE>
acceptance, then a copy of such notice or other communication should also be
sent to the attention of the General Counsel and the Head-Financial Guaranty
Group and shall be marked to indicate "URGENT MATERIAL ENCLOSED." Any notice
required or permitted to be given to a Certificateholder shall be given by first
class mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given when mailed,
whether or not the Certificateholder receives such notice. A copy of any notice
required to be telecopied hereunder also shall be mailed to the appropriate
party in the manner set forth above.
SECTION 12.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 12.07. Notice to Rating Agencies and the Certificate
Insurer.
The Trust Administrator shall use its best efforts promptly to
provide notice to the Rating Agencies and the Certificate Insurer with respect
to each of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Servicer Event of Default that
has not been cured or waived;
3. The resignation or termination of either Servicer,
the Trustee or the Trust Administrator;
4. The repurchase or substitution of Mortgage Loans
pursuant to or as contemplated by Section 2.03;
5. The final payment to the Holders of any Class of
Certificates;
6. Any change in the location of the Collection Account
or the Distribution Account;
7. Any event that would result in the inability of the
Trust Administrator or the Trustee, as applicable, to
make advances regarding delinquent Mortgage Loans;
8. Any Certificate Insurer Default that has not been
cured; and
9. The filing of any claim under either Servicer's
blanket bond and errors and omissions insurance
policy required by Section 3.14 or the cancellation
or material modification of coverage under any such
instrument.
In addition, the Trust Administrator shall promptly furnish to
each Rating Agency and the Certificate Insurer copies of each report to
Certificateholders described in Section 4.02 and the related Servicer shall
promptly furnish to each Rating Agency copies of the following:
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1. Each annual statement as to compliance described in
Section 3.20; and
2. Each annual independent public accountants' servicing
report described in Section 3.21.
Any such notice pursuant to this Section 12.07 shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by first class mail, postage prepaid, or by express delivery service
to Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007,
and to Standard & Poor's Ratings Services, 25 Broadway, New York, New York
10004, or such other addresses as the Rating Agencies may designate in writing
to the parties hereto.
SECTION 12.08. Article and Section References.
All article and section references used in this Agreement,
unless otherwise provided, are to articles and sections in this Agreement.
SECTION 12.09. Grant of Security Interest.
It is the express intent of the parties hereto that the
conveyance of the Mortgage Loans to the Trust Administrator, on behalf of the
Trustee, be, and be construed as, a sale of the Mortgage Loans and not a pledge
of the Mortgage Loans by the Depositor to secure a debt or other obligation of
the Depositor. However, in the event that, notwithstanding the aforementioned
intent of the parties, the Mortgage Loans are held to be property of the
Depositor, then, (a) it is the express intent of the parties that such
conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the
Trustee to secure a debt or other obligation of the Depositor and (b)(1) this
Agreement shall also be deemed to be a security agreement within the meaning of
Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time
in the State of New York; (2) the conveyance provided for in Section 2.01 hereof
shall be deemed to be a grant by the Depositor to the Trustee of a security
interest in all of the Depositor's right, title and interest in and to the
Mortgage Loans and all amounts payable to the holders of the Mortgage Loans in
accordance with the terms thereof and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, instruments, securities or other
property, including without limitation all amounts, other than investment
earnings, from time to time held or invested in the Collection Account and the
Distribution Account, whether in the form of cash, instruments, securities or
other property; (3) the obligations secured by such security agreement shall be
deemed to be all of the Depositor's obligations under this Agreement, including
the obligation to provide to the Certificateholders the benefits of this
Agreement relating to the Mortgage Loans and the Trust Fund; and (4)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property, shall be deemed notifications
to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Trustee for the purpose
of perfecting such security interest under applicable law. Accordingly, the
Depositor hereby grants to the Trustee a security interest in the Mortgage Loans
and all other property described in clause (2) of the preceding sentence, for
the purpose of securing to the Trustee the performance by the Depositor of the
obligations described in clause (3) of the preceding sentence. Notwithstanding
the foregoing, the parties hereto intend the conveyance pursuant to Section 2.01
to be a true, absolute and unconditional sale of the Mortgage Loans and assets
constituting the Trust Fund by the Depositor to the Trustee.
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<PAGE>
IN WITNESS WHEREOF, the Depositor, the Master Servicer, the
Servicers, the Trust Administrator and the Trustee have caused their names to be
signed hereto by their respective officers thereunto duly authorized, in each
case as of the day and year first above written.
NEW CENTURY MORTGAGE
SECURITIES, INC.,
as Depositor
By:________________________________________
Name:
Title:
[Name of Master Servicer]
as Master Servicer and Servicer
By:________________________________________
Name:
Title:
[Name of Servicer]
as Servicer
By:________________________________________
Name:
Title:
[Name of Trust Administartor]
as Trust Administrator
By:________________________________________
Name:
Title:
[Name of Trustee]
as Trustee
By:________________________________________
Name:
Title:
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the ____ day of ______________, before me, a notary public
in and for said State, personally appeared ________________, known to me to be
an ______________ of New Century Mortgage Securities, Inc., one of the
corporations that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ____________ )
) ss.:
COUNTY OF __________ )
On the ___ day of ________________, before me, a notary public
in and for said State, personally appeared _____________ known to me to be
___________ of ________________________, one of the corporations that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ___________ )
) ss.:
COUNTY OF _________ )
On the _____ day of ___________________, before me, a notary
public in and for said State, personally appeared ________________, known to me
to be _________________ of _________________________, one of the corporations
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that
such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ____________ )
) ss.:
COUNTY OF __________ )
On the _____ day of ________________, before me, a notary
public in and for said State, personally appeared ______________, known to me to
be a _____________ of ______________________________, one of the corporations
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ___________ )
) ss.:
COUNTY OF __________ )
On the ____ day of ____________, before me, a notary public in
and for said State, personally appeared __________________, known to me to be
__________ of ______________________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ______________ )
) ss.:
COUNTY OF __________ )
On the _____ day of _____________, before me, a notary public
in and for said State, personally appeared ____________, known to me to be a
________________ of ____________________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________
Notary Public
[Notarial Seal]
Exhibit 4.3
-----------
================================================================================
[NAME OF SERVICER],
as Servicer,
and
NEW CENTURY MORTGAGE SECURITIES, INC.
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
New Century Trust Series ____-__
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS..................................................................1
Section 1.02. OTHER DEFINITIONAL PROVISIONS................................................2
Section 1.03. INTEREST CALCULATIONS........................................................2
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER........................3
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES................................4
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER.................................................................6
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.................................7
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT......................................9
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION EXPENSES...............11
Section 3.05. MODIFICATION AGREEMENTS.....................................................12
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS.............................................12
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS...................................13
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE..................................14
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY SERVICER.............15
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE...........................................15
Section 3.11. ANNUAL SERVICING REPORT.....................................................16
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE
MORTGAGE LOANS .............................................................16
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES.........................17
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE GENERALLY
AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY..........17
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.............................17
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PAGE
ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS...............................................18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT........................................................20
Section 5.02. PAYMENT ACCOUNT.............................................................20
ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER...................................................22
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF,
THE SERVICER................................................................22
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS..........................22
Section 6.04. SERVICER NOT TO RESIGN......................................................23
Section 6.05. DELEGATION OF DUTIES........................................................24
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S FEES AND
EXPENSES; INDEMNIFICATION...................................................24
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT...........................................................26
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR..........................28
Section 7.03. NOTIFICATION TO SECURITYHOLDERS.............................................29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT...................................................................30
Section 8.02. GOVERNING LAW...............................................................30
Section 8.03. NOTICES.....................................................................30
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PAGE
Section 8.04. SEVERABILITY OF PROVISIONS..................................................30
Section 8.05. THIRD-PARTY BENEFICIARIES...................................................30
Section 8.06. COUNTERPARTS................................................................31
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS....................................31
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION OF ALL
MORTGAGE LOANS..............................................................31
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE.............................31
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR..............................................32
EXHIBIT A - MORTGAGE LOAN SCHEDULE..............................................................................A-1
EXHIBIT B - POWER OF ATTORNEY...................................................................................B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08................................................................C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE.........................................................................D-1
Schedule 1 - Mortgage Insurance Component Schedule..............................................................S-1
</TABLE>
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This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and New Century Mortgage
Securities Inc., as Company (the "Company"),
W I T N E S S E T H T H A T:
----------------------------
WHEREAS, New Century Mortgage Securities Inc., will create New
Century Trust Series ____-__, an owner trust (the "Issuer") under Delaware law,
and will transfer the Mortgage Loans and all of its rights under the Mortgage
Loan Purchase Agreement to the Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series ____-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series ____-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
this Servicing Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365- day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
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ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execu tion, delivery
and performance of this Servicing Agreement. When executed and
delivered, this Servicing Agreement will constitute the legal, valid
and binding obligation of the Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a
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reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of ____________;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase
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<PAGE>
Agreement) from the date the Seller was notified of such breach or (ii) purchase
such Mortgage Loan from the Company at the price and in the manner set forth in
Section 3.1(b) of the Mortgage Loan Purchase Agreement; PROVIDED that the Seller
shall, subject to the conditions set forth in the Mortgage Loan Purchase
Agreement, have the option to substitute an Eligible Substitute Mortgage Loan or
Loans for such Mortgage Loan. In the event that the Seller elects to substitute
one or more Eligible Substitute Mortgage Loans pursuant to Section 3.1(b) of the
Mortgage Loan Purchase Agreement, the Seller shall deliver to the Company with
respect to such Eligible Substitute Mortgage Loans, the original Mortgage Note,
the Mortgage, and such other documents and agreements as are required by the
Mortgage Loan Purchase Agreement. No substitution will be made in any calendar
month after the Determination Date for such month. Payments due with respect to
Eligible Substitute Mortgage Loans in the month of substitution shall not be
transferred to the Company and will be retained by the Servicer and remitted by
the Servicer to the Seller on the next succeeding Payment Date provided a
payment has been received by the Company for such month in respect of the
Mortgage Loan to be removed. The Servicer shall amend or cause to be amended the
Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the sub
stitution of the Eligible Substitute Mortgage Loans and the Servicer shall
promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and
Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
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ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, how ever, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mort gaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with the
Initial Subservicers for the servicing and administration of the Mortgage Loans
and may enter into additional Sub servicing Agreements with Subservicers for the
servicing and administration of certain of the
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Mortgage Loans. References in this Servicing Agreement to actions taken or to be
taken by the Servicer in servicing the Mortgage Loans include actions taken or
to be taken by a Subservicer on behalf of the Servicer and any amount received
by such Subservicer in respect of a Mortgage Loan shall be deemed to have been
received by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mort gage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the
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foregoing, the Servicer may in its discretion (i) waive any late payment charge,
penalty interest or other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for
the payment of principal and interest due and unpaid; PROVIDED such arrangement
is consistent with the Servicer's policies with respect to home equity mortgage
loans; PROVIDED, FURTHER, that notwithstanding such arrangement such Mortgage
Loans will be included in the information regarding delinquent Mortgage Loans
set forth in the Servicing Certificate. The Servicer may also extend the Due
Date for payment due on a Mortgage Loan, PROVIDED, HOWEVER, that the Servicer
shall first determine that any such waiver or extension will not adversely
affect the lien of the related Mortgage. Consistent with the terms of this
Servicing Agreement, the Servicer may also waive, modify or vary any term of any
Mortgage Loan or consent to the postponement of strict compliance with any such
term or in any manner grant indulgence to any Mortgagor if in the Servicer's
determination such waiver, modification, post ponement or indulgence is not
materially adverse to the interests of the Securityholders or the Credit
Enhancer, PROVIDED, HOWEVER, that the Servicer may not modify or permit any
Subservicer to modify any Mortgage Loan (including without limitation any
modification that would change the Mortgage Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless
such Mortgage Loan is in default or, in the judgment of the Servicer, such
default is reasonably foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a Mortgaged
Property; and
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(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties,
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. In the event any amount not required to be
deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
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(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such withdrawal right being limited to amounts
received on particular Mortgage Loans (other than any Repurchase Price
in respect thereof) which represent late recoveries of the payments for
which such advances were made, or from related Liquidation Proceeds or
the proceeds of the purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repur chase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event, to
pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the
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Servicer shall keep and maintain separate accounting, on a Mortgage Loan by
Mortgage Loan basis, for the purpose of justifying any withdrawal from the
Collection Account pursuant to such clauses. Notwithstanding any other provision
of this Servicing Agreement, the Servicer shall be entitled to reimburse itself
for any previously unreimbursed expenses incurred pursuant to Section 3.07 or
otherwise reimbursable pursuant to the terms of this Servicing Agreement that
the Servicer determines to be otherwise nonrecoverable (except with respect to
any Mortgage Loan as to which the Repurchase Price has been paid), by withdrawal
from the Collection Account of amounts on deposit therein attributable to the
Mortgage Loans on any Business Day prior to the Payment Date succeeding the date
of such determination.
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence of
this Section 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities
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as administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any alteration or demolition of the
related Mortgaged Property or other similar matters, if it has determined,
exercising its good faith business judgment in the same manner as it would if it
were the owner of the related Mortgage Loan, that the security for, and the
timely and full collectability of, such Mortgage Loan would not be adversely
affected thereby. A partial release pursuant to this Section 3.05 shall be
permitted only if the Combined Loan-to-Value Ratio for such Mortgage Loan after
such partial release does not exceed the Combined Loan-to-Value Ratio for such
Mortgage Loan as of the Cut-Off Date. Any fee collected by the Servicer or the
related Sub servicer for processing such request will be retained by the
Servicer or such Subservicer as additional servicing compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the
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Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Mortgage Loan or, if applicable,
Liquidation Proceeds, the Company shall promptly release the Related Documents
to the Servicer, along with such documents as the Servicer or the Mortgagor may
request as contemplated by the Servicing Agreement to evidence satisfaction and
discharge of such Mortgage Loan. If from time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Servicer requests the Company
or the related Custodian to release the Related Documents and delivers to the
Company or the related Custodian a trust receipt reasonably satisfactory to the
Company or the related Custodian and signed by a Responsible Officer of the
Servicer, the Company or the related Custodian shall release the Related
Documents to the Servicer. If such Mortgage Loans shall be liquidated and the
Company or the related Custodian receives a certificate from the Servicer as
provided above, then, upon request of the Company or the related Custodian shall
release the trust receipt to the Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advanc ing of funds to correct such default) and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities; PROVIDED that the Servicer shall not be
liable in any respect hereunder if the Servicer is acting in connection with any
such foreclosure or attempted foreclosure which is not completed or other
conversion in a manner that is consistent with the provisions of this Servicing
Agreement. The foregoing is subject to the proviso that the Servicer shall not
be required to expend its own funds in connection with any fore closure or
attempted foreclosure which is not completed or towards the correction of any
default on a related senior mortgage loan or restoration of any property unless
it shall determine that such expenditure will increase Net Liquidation Proceeds.
In the event of a determination by the Servicer that any such expenditure
previously made pursuant to this Section 3.07 will not be reimbursable from Net
Liquidation Proceeds, the Servicer shall be entitled to reimbursement of its
funds so expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
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In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Company until such time as such property shall be sold. Consistent
with the foregoing for purposes of all calculations hereunder, so long as such
Mortgaged Property shall be considered to be an outstanding Mortgage Loan it
shall be assumed that, notwithstanding that the indebtedness evidenced by the
related Mortgage Note shall have been discharged, such Mortgage Note in effect
at the time of any such acquisition of title before any adjustment thereto by
reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in substan
tially the form attached hereto as Exhibit C (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 3.02 have been so deposited or credited) of a Servicing Officer. Upon
receipt of payment in full, the Servicer is authorized to execute, pursuant to
the authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required under the Mortgage Loan Purchase Agreement, an
instrument of satisfaction regarding the related Mortgage, which instrument of
satisfaction shall be recorded by the Servicer if required by applicable law and
be delivered to the Person entitled thereto. It is understood and agreed that
any expenses incurred in connection with such instrument of satisfaction or
transfer shall be reimbursed from amounts deposited in the Collection Account.
From time to time and as appropriate for the servicing or foreclosure of any
Mortgage Loan, the Indenture Trustee or the relevant Custodian shall, upon
request of the Servicer and delivery to the Indenture Trustee or relevant
Custodian, with a copy to the Company, of a Request for Release, in the form
annexed hereto as Exhibit D, signed by a Servicing Officer, release or cause to
be released the related Mortgage File to the Servicer and the Company and
Indenture Trustee shall promptly execute such documents, in the forms provided
by the Servicer, as shall be necessary for the prosecution of any such
proceedings or the taking of other servicing actions. Such trust receipt shall
obligate the Servicer to return the Mortgage File to the Indenture Trustee or
the related Custodian (as specified in such receipt) when the need therefor by
the Servicer no longer exists unless the Mortgage Loan
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shall be liquidated, in which case, upon receipt of a certificate of a Servicing
Officer similar to that hereinabove specified, the trust receipt shall be
released to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit or credit the Net
Liquidation Proceeds, exclusive of Foreclosure Profits, received with respect
thereto in the Collection Account. In the event that all delinquent payments due
under any such Mortgage Loan are paid by the Mortgagor and any other defaults
are cured then the assignee for collection shall promptly reassign such Mortgage
Loan to the Company and return all Related Documents to the place where the
related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compen sation for its services in connection
with servicing the Mortgage Loans. Moreover, additional servicing compensation
in the form of late payment charges and certain other receipts not required to
be deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material
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obligations under this Servicing Agreement in all material respects throughout
such fiscal year, or, if there has been a material default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof and (iii) to the best of such officer's knowledge,
based on consultation with counsel, any continuation Uniform Commercial Code
financing statement or other Uniform Commercial Code financing statement during
the preceding fiscal year which the Servicer determined was necessary to be
filed was filed in order to continue protection of the interest of the Company
in the Mortgage Loans. In addition, the Servicer shall deliver or cause each
Subservicer to deliver to the Indenture Trustee, the Company, the Issuer, the
Depositor and the Credit Enhancer a copy of each certification, accountant's
report or other document upon which the foregoing Officer's Certificate is based
with respect to such Subservicer's performance.
(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of non compliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are sub stantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business
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hours at the offices of the Servicer. Nothing in this Section 3.12 shall
derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any Mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90-179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The
determination by the Servicer of such amounts shall, in the absence of obvious
error, be presumptively deemed to be correct for all purposes hereunder and the
Owner Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled "New
Century Trust Series ____-__, [for the benefit of the Noteholders, the
Certificateholders and the Credit Enhancer pursuant to the Indenture, dated as
of _______________, between New Century Trust Series ____-__ and [Name of
Indenture Trustee]. The Distribution Account shall be an Eligible Account. On
the Business Day prior to each Payment Date, (i) amounts deposited into the
Distribution Account pursuant to Section 3.03(i) hereof will be distributed by
the Servicer in accordance with Section ____ of the [Trust] Agreement, and (ii)
the portion of such amounts then distributable with respect to the Mortgage
Collateral shall be deposited into the Payment Account. [The Servicer shall
invest or cause the institution maintaining the Distribution Account to invest
the funds in the Distribution Account in Eligible Investments designated in the
name of the [Servicer], which shall mature not later than the Business Day next
preceding the Payment Date next following the date of such investment (except
that (i) any investment in the institution with which the Distribution Account
is maintained may mature on such Payment Date and (ii) any other investment may
mature on such Payment Date if the Servicer shall advance funds on such Payment
Date to the Payment Account in the amount payable on such investment on such
Payment Date, pending receipt thereof to the extent necessary to make
distributions on the Securities) and shall not be sold or disposed of prior to
maturity. All income and gain realized from any such investment shall be for the
benefit of the Servicer and shall be subject to its withdrawal or order from
time to time. The amount of any losses incurred in respect of any such
investments shall be deposited in the Distribution Account by the Servicer out
of its own funds immediately as realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between New Century Trust Series
____-__ and __________________________________". The Payment Account shall be an
Eligible Account. On each Payment Date, amounts on deposit in the Payment
Account will be distributed by the Indenture Trustee in accordance with Section
3.05 of the Indenture. The Indenture Trustee shall, upon written request from
the Servicer, invest or cause the institution maintaining the Payment Account to
invest the funds in the Payment Account in Eligible Investments designated in
the name of the Indenture Trustee, which shall mature not later than the
Business Day next preceding the Payment Date next following the date of such
investment (except that (i) any investment in the institution with which the
Payment Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Payment Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Securities) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Servicer and shall be subject to its
withdrawal or order from time to time. The amount of any
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losses incurred in respect of any such investments shall be deposited in the
Payment Account by the Servicer out of its own funds immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reason ably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other
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<PAGE>
than any loss, liability or expense related to any specific Mortgage Loan or
Mortgage Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Servicing Agreement) and any loss, liability or
expense incurred by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement, and which in its opinion may involve
it in any expense or liability; PROVIDED, HOWEVER, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Securityholders hereunder. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Company, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer's right
to indemnity or reimbursement pursuant to this Section 6.03 shall survive any
resignation or termination of the Servicer pursuant to Section 6.04 or 7.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other activi
ties carried on by it or its subsidiaries or Affiliates, the other activities of
the Servicer so causing such a conflict being of a type and nature carried on by
the Servicer or its subsidiaries or Affiliates at the date of this Servicing
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Company, the Administrator and
the Indenture Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
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Section 6.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the Servicer complies pursuant to
Section 3.01. Such delegation shall not relieve the Servicer of its liabilities
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
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<PAGE>
No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the Owner Trustee, including the costs and
expenses of defending itself against any claim, incurred in connection with any
actions taken by the Indenture Trustee or the Owner Trustee at the direction of
the Noteholders or Certificateholders, as the case may be, pursuant to the terms
of this Servicing Agreement.
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ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securi ties or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshaling of assets and liabilities or similar
proceed ings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceed ings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any appli cable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
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(v) Any failure by the Seller (so long as the Seller is
the Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the terms of the Insurance Agreement which
continues unremedied for a period of three (3) Business Days after the
date upon which written notice of such failure shall have been given to
the Seller (so long as the Seller is the Servicer) or the Servicer, as
the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorse ment of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Company in effecting the termination of the responsibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or
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<PAGE>
if the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The pre ceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Mortgage Collateral holders may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as
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the successor to the Servicer hereunder in the assumption of all or any part of
the responsibilities, duties or liabilities of the Servicer hereunder; PROVIDED
that any such successor Servicer shall be acceptable to the Credit Enhancer, as
evidenced by the Credit Enhancer's prior written consent which consent shall not
be unreasonably withheld and provided further that the appointment of any such
successor Servicer will not result in the qualification, reduction or withdrawal
of the ratings assigned to the Securities by the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Indenture
Trustee is prohibited by law from so acting, the Indenture Trustee shall act in
such capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Servicer would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Servicing Agreement prior
to its termination as Servicer (including, without limitation, the obligation to
purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an
insurance policy pursuant to Section 3.04 or to indemnify the Indenture Trustee
pursuant to Section 6.06), nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. The Indenture Trustee and such successor shall take such
action, consistent with this Servicing Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
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ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to New Century Trust Series ____-__, c/o ______________________,
__________________, __________, ______________, Attention:
__________________________, with a copy to the Administrator at ______________
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. [Any notice required or permitted to be
mailed to a Securityholder shall be given by first class mail, postage prepaid,
at the address of such Securityholder as shown in the Register. Any notice so
mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Securityholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to delivery such
notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns.
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Except as otherwise provided in this Servicing Agreement, no other Person will
have any right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust
Agreement is terminated, or
(ii) the purchase by the Servicer from the Company of all Mortgage
Loans and all property acquired in respect of any Mortgage Loan at a
price equal to the greater of (a) 100% of the unpaid Principal Balance
of each Mortgage Loan, plus accrued and unpaid interest thereon at the
Weighted Average Net Mortgage Rate up to the day preceding the Payment
Date on which such amounts are to be distributed to Securityholders,
plus any amounts due and owing to the Credit Enhancer under the
Insurance Agreement and (b) the fair market value of the Mortgage Loans
as determined by two bids from competitive participants in the
adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
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[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Admin istration
Agreement.]
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IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
By____________________________________
Title:
NEW CENTURY MORTGAGE SECURITIES, INC.
as Company
By_________________________________
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Primary Insurance Policy
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
_____________________
Name
_____________________
Title
_____________________
Date
Exhibit 4.4
================================================================================
NEW CENTURY MORTGAGE SECURITIES, INC.
as Depositor
and
----------------------,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
New Century Trust Series ____-___
================================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Section Page
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
1.01. DEFINITIONS................................................................................1
1.02. OTHER DEFINITIONAL PROVISIONS..............................................................1
ARTICLE II
ORGANIZATION.............................................................................................3
2.01. NAME.......................................................................................3
2.02. OFFICE.....................................................................................3
2.03. PURPOSES AND POWERS........................................................................3
2.04. APPOINTMENT OF OWNER TRUSTEE...............................................................4
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE.........................................4
2.06. DECLARATION OF TRUST.......................................................................4
2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES................................................4
2.08. TITLE TO TRUST PROPERTY....................................................................5
2.09. SITUS OF TRUST.............................................................................5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR............................................5
2.11. PAYMENT OF TRUST FEES......................................................................6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES............................................................................................7
3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL......................................................7
3.02. INITIAL OWNERSHIP..........................................................................7
3.03. THE CERTIFICATES...........................................................................7
3.04. AUTHENTICATION OF CERTIFICATES.............................................................7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF CERTIFICATES...................8
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES..........................................9
3.07. PERSONS DEEMED CERTIFICATEHOLDERS.........................................................10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES.................................10
3.09. MAINTENANCE OF OFFICE OR AGENCY...........................................................10
3.10. CERTIFICATE PAYING AGENT..................................................................10
3.11. OWNERSHIP.................................................................................12
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SECTION PAGE
ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE...................................................................13
4.01. GENERAL AUTHORITY.........................................................................13
4.02. GENERAL DUTIES............................................................................13
4.03. ACTION UPON INSTRUCTION...................................................................13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN INSTRUCTIONS................14
4.05. RESTRICTIONS..............................................................................14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS........................14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS..............................15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY...................................15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER.................................................16
4.10. MAJORITY CONTROL..........................................................................16
ARTICLE V
APPLICATION OF TRUST FUNDS..............................................................................17
5.01. DISTRIBUTIONS.............................................................................17
5.02. METHOD OF PAYMENT.........................................................................17
5.03. SIGNATURE ON RETURNS......................................................................18
5.04. STATEMENTS TO CERTIFICATEHOLDERS..........................................................18
5.05. TAX REPORTING; TAX ELECTIONS..............................................................18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE............................................................................19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES...........................................................19
6.02. FURNISHING OF DOCUMENTS...................................................................20
6.03. REPRESENTATIONS AND WARRANTIES............................................................20
6.04. RELIANCE; ADVICE OF COUNSEL...............................................................21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY.........................................................21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS............................22
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS..............................................22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE...........................................................................23
7.01. OWNER TRUSTEE'S FEES AND EXPENSES.........................................................23
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SECTION PAGE
7.02. INDEMNIFICATION...........................................................................23
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT..........................................................................25
8.01. TERMINATION OF TRUST AGREEMENT............................................................25
8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED CERTIFICATE...................26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................27
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE................................................27
9.02. REPLACEMENT OF OWNER TRUSTEE..............................................................27
9.03. SUCCESSOR OWNER TRUSTEE...................................................................28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE..................................................28
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.............................................28
ARTICLE X
MISCELLANEOUS...........................................................................................30
10.01. AMENDMENTS................................................................................30
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE......................................................31
10.03. LIMITATIONS ON RIGHTS OF OTHERS...........................................................31
10.04. NOTICES...................................................................................32
10.05. SEVERABILITY..............................................................................32
10.06. SEPARATE COUNTERPARTS.....................................................................32
10.07. SUCCESSORS AND ASSIGNS....................................................................32
10.08. NO PETITION...............................................................................32
10.9. NO RECOURSE...............................................................................32
10.10. HEADINGS..................................................................................33
10.11. GOVERNING LAW.............................................................................33
10.12. INTEGRATION...............................................................................33
Signatures ......................................................................................................40
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EXHIBIT
Exhibit A - Form of Certificate.................................................................................A-1
Exhibit B - Certificate of Trust of New Century Trust ..........................................................B-1
Exhibit C - Form of Certificate of Non-Foreign Status...........................................................C-1
Exhibit D - Form of Investment Letter...........................................................................D-1
Exhibit E - Form of Investment Letter
for Certificates....................................................................................E-1
</TABLE>
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This Trust Agreement, dated as of ________________ (as amended from
time to time, this "Trust Agreement"), between New Century Mortgage Securities,
Inc., a Delaware corporation, as Depositor (the "Depositor") and
______________________, a Delaware ___________________, as Owner Trustee (the
"Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture. All other capitalized terms used herein
shall have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
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ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "New Century Trust Series ____-__," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Bonds pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Bonds and
the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Collateral pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to Section 5.01 any
portion of the Mortgage Collateral released from the Lien of, and
remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Bondholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Bond is outstanding and without regard to the Bonds
and] [without the consent of __% of the Certificateholders].
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Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Bond assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for income and franchise tax pur poses, the Trust shall be treated
as a corporation, with the assets of the corporation being the Owner Trust
Estate, the [equity interest in the corporation] being the Certificates and the
Bonds being debt of the corporation and the provisions of this Agreement shall
be interpreted to further this intention. Except as otherwise provided in this
Trust Agreement, the rights of the Certificateholders will be those of [equity
owners of the Trust] formed under the Delaware [corporation law]. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a corporation
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The
Holders of the Certificates shall be liable directly to and shall indemnify any
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the Owner Trust Estate)
to the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Bonds or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Bondholder in the capacity of an investor in the Bonds. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
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(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct
its business as such properties are currently owned and such business
is presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor.
(iii) The Depositor has the power and authority to execute
and deliver this Trust Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property
to be sold and assigned to and deposited with the Trust as part of the
Trust and the Depositor has duly authorized such sale and assignment
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Trust Agreement have been
duly authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
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under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
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ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Bonds and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Bond.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all of its right, title and interest in
and to the Mortgage Collateral. In the event that the transaction set forth
herein is not deemed to be a sale, the Depositor hereby grants to the Trust a
security interest in all of its right, title and interest in, to and under the
Owner Trust Estate, all distributions thereon and all proceeds thereof; and this
Trust Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in
minimum denominations of $[_______] and in integral multiples of $______ in
excess thereof; except for one Certificate that may not be in an integral
multiple of $______; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $_________. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate
7
<PAGE>
principal amount equal to the Initial Principal Balance of the Certificates to
be executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Certificate shall entitle its holder
to any benefit under this Trust Agreement or be valid for any purpose unless
there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or ____________________, by manual signature; such authentication shall
constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit C hereto.
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No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate Registrar or the
Depositor shall prior to such transfer require the transferee to execute (i) (a)
an investment letter (in substantially the form attached hereto as Exhibit D) in
form and substance reasonably satisfactory to the Certificate Registrar and the
Depositor certifying to the Trust, the Owner Trustee, the Certificate Registrar
and the Depositor that such transferee is a "qualified institutional buyer"
under Rule 144A under the Securities Act, or (b) solely with respect to the
Designated Certificate, an investment letter (in substantially the form attached
hereto as Exhibit E), acceptable to and in form and substance reasonably
satisfactory to the Certificate Registrar and the Depositor, which investment
letters shall not be an expense of the Trust, the Owner Trustee, the Certificate
Registrar, the Servicer or the Depositor and (ii) the Certificate of Non-Foreign
Status (in substantially the form attached hereto as Exhibit C) acceptable to
and in form and substance reasonably satisfactory to the Certificate Registrar
and the Depositor, which certificate shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar or the Depositor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trust, the Owner Trustee, the Certificate Registrar, the Servicer
and the Depositor against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, which
representation letter shall not be an expense of the Trust, Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor or (ii) in the case of any
such certificate presented for registration in the name of an employee benefit
plan subject to the fiduciary responsibility provisions of ERISA, or Section
4975 of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan, or any other Person who is using the assets of any
such plan to effect such acquisition, an Opinion of Counsel, in form and
substance reasonably satisfactory to, and addressed and delivered to, the Trust,
the Certificate Registrar and the Depositor, to the effect that the purchase or
holding of such Certificate will not result in the assets of the Owner Trust
Estate being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
the Code, will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor to any obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those explicitly
undertaken in this Trust Agreement which Opinion of Counsel shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity
9
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as may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like tenor and denomination. In connection with the issuance of any new
Certificate under this Section 3.06, the Owner Trustee or the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section 3.06 shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed not to hold any of the
Trust, the Depositor, the Holder of the Designated Certificate, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certifi cates and the
Basic Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office of the Owner Trustee as its office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints __________________ as Certificate
Paying Agent and
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_________________ hereby accepts such appointment and further agrees that it
will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by
the Trust of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay to
the Owner Trustee on behalf of the Trust all sums so held in Trust by
such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all sums held
by it in trust for the payment of Certificates if at any time it ceases
to meet the standards required to be met by the Certificate Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; and
(vi) deliver to the Owner Trustee a copy of the report
to Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) On the second LIBOR Business Day immediately preceding (i) the
Closing Date in the case of the first Interest Period and (ii) the first day of
each succeeding Interest Period, the Certificate Paying Agent shall determine
LIBOR and the Certificate Rate for such Interest Period and shall inform the
Servicer and the Depositor at their respective facsimile numbers given to the
Certificate Paying Agent in writing thereof.
(c) The Trust may revoke such power and remove the Certificate Paying
Agent if the Administrator determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Trust Agreement in any material respect. __________________ shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional
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Certificate Paying Agent appointed by the Administrator to execute and deliver
to the Owner Trustee an instrument to the effect set forth in this Section 3.10
as it relates to the Certificate Paying Agent. The Certificate Paying Agent
shall return all unclaimed funds to the Trust and upon removal of a Certificate
Paying Agent such Certificate Paying Agent shall also return all funds in its
possession to the Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01
shall apply to the Certificate Paying Agent to the extent applicable. Any
reference in this Agreement to the Certificate Paying Agent shall include any
co-paying agent unless the context requires otherwise.
(d) The Certificate Paying Agent shall establish and maintain with
itself a trust account (the "Certificate Distribution Account") in which the
Certificate Paying Agent shall, deposit, on the same day as it is received from
the Indenture Trustee, each remittance received by the Certificate Paying Agent
with respect to payments made pursuant to the Indenture. The Certificate Paying
Agent shall make all distributions of principal of and interest on the
Certificates, from moneys on deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and
franchise tax purposes, be treated as the equity interest of the Trust. The
Certificates shall not be transferred unless (a) the transferee shall be an
Affiliate of the Seller, unless the prior written consent of the Credit Enhancer
is obtained, which will not be unreasonably withheld, (b) the applicable
provisions of Section 3.05 are satisfied, (c) the Certificate Registrar receives
an Opinion of Counsel to the effect that the transfer of the Certificates shall
not cause the Trust to be subject to an entity level tax and (d) the Rating
Agencies shall consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction
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as to the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Certificateholders received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any
action (x) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (y) that, to the actual knowledge of the Owner Trustee, would
result in the Trust becoming taxable as a corporation for federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee
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in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Collateral) and the compromise of any action, claim
or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Bond Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Credit Enhancer, to (a)
remove the Administrator under the Administration Agreement pursuant to Section
8 thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
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Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Trust Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Principal Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certif icate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Bondholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
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Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust.
Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the
Certificate shall cause the Trust to file federal and state income tax returns
and information statements as a corporation for each of its taxable years.
Within 90 days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Bonds;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Bonds, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Bondholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no
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obligation or liability to perform the obligations of the Trust under this Trust
Agreement or the Basic Documents that are required to be performed by the
Administrator under the Administration Agreement, the Indenture Trustee under
the Indenture or the Seller under the Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
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creditors' rights generally and to general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at law;
(e) The Owner Trustee is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created ______________________
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Trust Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
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Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Bonds, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Certificateholders under this Trust Agreement or the Bondholders
under the Indenture, including, the compliance by the Depositor or the Seller
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation, or any
action of the Administrator, the Certificate Paying Agent, the Certificate
Registrar or the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Bonds and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not
be liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a representation or warranty contained in Section 6.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified
Party shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense,
the Holder of the Designated Certificate shall consult with the
Indemnified Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder of the Designated Certificate
which consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection
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with the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld. In addition, upon written notice to the Owner Trustee
and with the consent of the Owner Trustee which consent shall not be
unreasonably withheld, the Holder of the Designated Certificate has the right to
assume the defense of any claim, action or proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obliga tions
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certif-
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icates, and the cost thereof shall be paid out of the funds and other assets
that shall remain subject to this Trust Agreement. Any funds remaining in the
Certificate Distribution Account after exhaustion of such remedies shall be
distributed by the Certificate Paying Agent to the Holder of the Designated
Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE
DESIGNATED CERTIFICATE. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Trust Agreement and
the Trust shall be terminated in accordance with Section 8.01, 90 days after the
date of such Insolvency Event, unless, before the end of such 90- day period,
the Owner Trustee shall have received written instructions from (a) if no Credit
Enhancer Default shall have occurred and be continuing, Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Principal Balance of the Certificates (not including the Principal
Balance of the Designated Certificate), to the effect that such Holders
disapprove of the termination of the Trust or (b) if a Credit Enhancer Default
shall have occurred and be continuing, (i) each of the Holders of Certificates
and (ii) each of the Holders of the Bonds, to the effect that such Holders
disapprove of the termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Holder of the Designated Certificate (A)
the Holder of the Designated Certificate shall give the Indenture Trustee, the
Credit Enhancer and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Holder of the Designated Certificate, give prompt written notice to the
Certificateholders of the occurrence of such event and (C) the Indenture Trustee
shall give prompt written notice of such event to the Bondholders; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 8.02. Upon a termination pursuant to this
Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell
the assets of the Trust (other than the Payment Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of any such
sale of the assets of the Trust shall be deposited to the Payment Account for
distribution in accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least Baa3 by [Moody's]. If
such corporation shall publish reports of condition at least annually pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.01, the Owner Trustee shall resign immediately
in the manner and with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Administrator, the Credit Enhancer and
the Depositor. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until accep tance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
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Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Owner Trustee an instrument accepting such
appointment under this Trust Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Trust Agreement, with like effect as if originally named as Owner
Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Trust Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Bondholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Trust Agreement shall
be
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required to meet the terms of eligibility as a successor Owner Trustee pursuant
to Section 9.01 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 9.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and (B) an
Opinion of Counsel to the effect that such action will not adversely affect in
any material respect the interests of any Holders, and the consent of the Credit
Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of
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any Holder, but the Owner Trustee shall be furnished with (A) an Opinion of
Counsel to the effect that such action will not adversely affect in any material
respect the interests of any Holders and (B) a letter from the Rating Agencies
that the amendment will not result in the downgrading or withdrawal of the
rating then assigned to any Security and the consent of the Credit Enhancer
shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided beneficial interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Bondholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
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Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if to the Owner Trustee, addressed to the Corporate
Trust Office; if to the Depositor, addressed to New Century Mortgage Securities,
Inc., _____________________; Attention: _________________; if to the Credit
Enhancer, addressed to ___________, Attention: _________________, if to the
Rating Agencies, addressed to ________________________ Attention: __________or,
as to each party, at such other address as shall be designated by such party in
a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Bonds, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated
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Certificate, the Seller, the Administrator, the Owner Trustee, the Indenture
Trustee or any Affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Trust Agreement, the Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
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IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
NEW CENTURY MORTGAGE SECURITIES, INC.
By:_____________________________________
Name:
Title:
______________________, not in its
individual capacity but solely as Owner
Trustee,
By:_____________________________________
Name:
Title:
Acknowledged and Agreed:
___________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:___________________________________
Name:
Title:
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EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI
CATE REGISTRAR SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN
STATUS CERTIFYING AS TO THE TRANSFEREE'S STATUS AS A U.S. PERSON OR
CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE SELLER, THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE, OR
<PAGE>
THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY
PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
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Certificate No.
Original principal amount ("Denomination")
of this Certificate: $_________
Aggregate Denominations of all
Certificates: $
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date ___________, ____
CUSIP NO. __________
New Century Trust Series ____-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
NEW CENTURY MORTGAGE SECURITIES, INC., AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the New Century Trust Series ____-__
(the "Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Collateralized
Mortgage Certificates, Series 199_-__ (herein called the "Certificates") issued
under the Trust Agreement to which reference is hereby made for a statement of
the respective rights thereunder of the Depositor, the Owner Trustee and the
Holders of the Certificates and the terms upon which the Certificates are
executed and delivered. All terms used in this Certificate which are defined in
the Trust Agreement shall have the meanings assigned to them in the Trust
Agreement. The Owner Trust Estate consists of the Mortgage Collateral in the New
Century Trust Series ____-____ and a
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Surety Bond. The rights of the Holders of the Certificates are subordinated to
the rights of the Holders of the Bonds, as set forth in the [Indenture].
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Bondholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Bonds, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
__________________________________.
A-4
<PAGE>
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
NEW CENTURY TRUST SERIES ____-__
by _____________________, not in its
individual capacity but solely as
Owner Trustee
________________________
Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________,
not in its individual capacity
but solely as Owner Trustee
By:______________________________
Authorized Signatory
or __________________________________,
as Authenticating Agent of the Trust
By:______________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the pur pose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment without the
consent of the Holders of all such Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the _________________________________, accompanied by a written
instrument of transfer in form satisfactory to the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $______ and in integral multiples of
$______ in excess thereof, except for one Certificate that may not be in an
integral multiple of $______. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to _______________________________________________________________________
for the account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
______________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
NEW CENTURY TRUST SERIES ____-___
THIS Certificate of Trust of New Century Trust Series ____-__
(the "Trust"), dated ___________, ____, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET
SEQ.).
1. NAME. The name of the business trust formed hereby is New
Century Trust Series ____-__.
2. DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
_______________________,
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of _________, ____,
By:
________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
____________________________________________
____________________________________________
____________________________________________
____________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of _________, ____ between New Century Mortgage
Securities, Inc., as Depositor and ______________________, as Owner Trustee
pursuant to Section 3.05 of the Agreement and __________________________________
as indenture trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
C-1
<PAGE>
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
C-2
<PAGE>
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
__________________________________ ____________________________________
Print Name of Seller Print Name of Buyer
By:_______________________________ By:_________________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No._______________________________ No._________________________________
Date:_____________________________ Date:_______________________________
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
--------------------------------------------------------
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
C-5
<PAGE>
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
____________________________________
Print Name of Buyer
By: _______________________________
Name:
Title:
Date:
C-6
<PAGE>
ANNEX 2 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
--------------------------------------------------------
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
C-7
<PAGE>
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition, the Buyer will only
purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
Print Name of Buyer
By:_____________________________
Name:________________________
Title:_______________________
IF AN ADVISER:
________________________________
Print Name of Buyer
Date:___________________________
C-8
<PAGE>
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between New Century Mortgage Securities, Inc., as
depositor and ______________________, as Owner Trustee, in connection with the
acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the Mortgage-Backed Notes, Series ____-__ (the
"Certificate"). Capitalized terms used but not defined in this certificate have
the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a
non-resident alien for purposes of U.S.
income taxation;
2. My (The Beneficial Owner's) name and home
address are:
__________________________
__________________________
__________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security
Number) is ________________________.
B. Corporate, Partnership or Other Entity as Beneficial Owner
1. (Name of the Beneficial Owner) is not a
foreign corporation, foreign partnership,
foreign trust or foreign estate (as those
terms are defined in the Code and Treasury
Regulations;
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is
____________________________; and
C-9
<PAGE>
3. The Beneficial Owner's U.S. employer identification
number is _______________________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
_______ an IRS Form W-9
_______ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
C-10
<PAGE>
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
_______________________
Name
_______________________
Title (if applicable)
_______________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
C-11
<PAGE>
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: New Century Trust Series _____-__
Mortgage-Backed Notes,
Series ____-__, (the "Certificates")
------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
F-1
<PAGE>
Very truly yours,
[TRANSFEREE]
By:_________________________
Authorized Officer
F-2
Exhibit 4.5
-----------
NEW CENTURY TRUST SERIES ____ - __
Issuer
AND
[Name of Indenture Trustee]
Indenture Trustee
-----------------------------------------
INDENTURE
Dated as of _________, ____
------------------------------------------
Mortgage-Backed Notes Series ____-___
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Section Page
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<S> <C> <C>
ARTICLE I
Definitions
1.01. DEFINITIONS.............................................................................. 2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................................ 2
1.03. RULES OF CONSTRUCTION.................................................................... 2
ARTICLE II
Original Issuance of Notes
2.01. FORM..................................................................................... 4
2.02. EXECUTION, AUTHENTICATION AND DELIVERY................................................... 4
ARTICLE III
Covenants
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS................................ 5
3.02. MAINTENANCE OF OFFICE OR AGENCY.......................................................... 5
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT..................................... 5
3.04. EXISTENCE................................................................................ 6
3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.................................... 6
3.06. PROTECTION OF TRUST ESTATE............................................................... 8
3.07. OPINIONS AS TO TRUST ESTATE.............................................................. 9
3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT.......................................... 10
3.09. NEGATIVE COVENANTS....................................................................... 10
3.10. ANNUAL STATEMENT AS TO COMPLIANCE........................................................ 11
3.11. RECORDING OF ASSIGNMENTS................................................................. 11
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS............................. 11
3.13. AMENDMENTS TO SERVICING AGREEMENT........................................................ 11
3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS HOLDER......................... 12
3.15. INVESTMENT COMPANY ACT................................................................... 12
3.16. ISSUER MAY CONSOLIDATE, ETC.............................................................. 12
3.17. SUCCESSOR OR TRANSFEREE.................................................................. 14
3.18. NO OTHER BUSINESS........................................................................ 14
3.19. NO BORROWING............................................................................. 14
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES........................................ 14
3.21. CAPITAL EXPENDITURES..................................................................... 14
3.22. [Reserved]............................................................................... 14
3.23. RESTRICTED PAYMENTS...................................................................... 14
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3.24. NOTICE OF EVENTS OF DEFAULT.............................................................. 15
3.25. FURTHER INSTRUMENTS AND ACTS............................................................. 15
3.26. STATEMENTS TO NOTEHOLDERS................................................................ 15
3.27. DETERMINATION OF NOTE INTEREST RATE...................................................... 15
3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT......................................... 15
3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT................................................ 16
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. THE NOTES................................................................................ 17
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
APPOINTMENT OF CERTIFICATE REGISTRAR..................................................... 17
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES............................................... 18
4.04. PERSONS DEEMED OWNERS.................................................................... 19
4.05. CANCELLATION............................................................................. 19
4.06. BOOK-ENTRY NOTES......................................................................... 19
4.07. NOTICES TO DEPOSITORY.................................................................... 20
4.08. DEFINITIVE NOTES......................................................................... 20
4.09. TAX TREATMENT............................................................................ 21
4.10. SATISFACTION AND DISCHARGE OF INDENTURE.................................................. 21
4.11. APPLICATION OF TRUST MONEY............................................................... 22
4.12. SUBROGATION AND COOPERATION.............................................................. 22
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT................................................. 23
4.14. TEMPORARY NOTES.......................................................................... 23
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT........................................................................ 24
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT....................................... 24
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE
TRUSTEE.................................................................................. 25
5.04. REMEDIES; PRIORITIES..................................................................... 27
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE................................................ 28
5.06. LIMITATION OF SUITS...................................................................... 29
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND INTEREST.................... 29
5.08. RESTORATION OF RIGHTS AND REMEDIES....................................................... 29
5.09. RIGHTS AND REMEDIES CUMULATIVE........................................................... 30
5.10. DELAY OR OMISSION NOT A WAIVER........................................................... 30
5.11. CONTROL BY NOTEHOLDERS................................................................... 30
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5.12. WAIVER OF PAST DEFAULTS.................................................................. 31
5.13. UNDERTAKING FOR COSTS.................................................................... 31
5.14. WAIVER OF STAY OR EXTENSION LAWS......................................................... 31
5.15. SALE OF TRUST ESTATE..................................................................... 31
5.16. ACTION ON NOTES.......................................................................... 33
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE.............................................................. 35
6.02. RIGHTS OF INDENTURE TRUSTEE.............................................................. 36
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE................................................... 36
6.04. INDENTURE TRUSTEE'S DISCLAIMER........................................................... 36
6.05. NOTICE OF EVENT OF DEFAULT............................................................... 37
6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS.................................................. 37
6.07. COMPENSATION AND INDEMNITY............................................................... 37
6.08. REPLACEMENT OF INDENTURE TRUSTEE......................................................... 37
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER.................................................... 38
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE........................ 39
6.11. ELIGIBILITY; DISQUALIFICATION............................................................ 40
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER......................................... 40
6.13. REPRESENTATION AND WARRANTY.............................................................. 40
6.14. DIRECTIONS TO INDENTURE TRUSTEE.......................................................... 41
6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR.................................................. 41
6.16. INDENTURE TRUSTEE MAY OWN SECURITIES..................................................... 41
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS.............................................................................. 42
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS............................... 42
7.03. REPORTS BY ISSUER........................................................................ 42
7.04. REPORTS BY INDENTURE TRUSTEE............................................................. 43
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY...................................................................... 44
8.02. TRUST ACCOUNTS........................................................................... 44
8.03. OFFICER'S CERTIFICATE.................................................................... 45
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS............................................. 45
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8.05. RELEASE OF TRUST ESTATE.................................................................. 45
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT.................................................... 46
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS................................... 47
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS...................................... 48
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES..................................................... 49
9.04. EFFECT OF SUPPLEMENTAL INDENTURE......................................................... 50
9.05. CONFORMITY WITH TRUST INDENTURE ACT...................................................... 50
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES............................................ 50
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC................................................ 51
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE......................................... 52
10.03. ACTS OF NOTEHOLDERS...................................................................... 53
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT ENHANCER AND RATING
AGENCIES................................................................................. 54
10.05. NOTICES TO NOTEHOLDERS; WAIVER........................................................... 54
10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS.................................................. 55
10.07. CONFLICT WITH TRUST INDENTURE ACT........................................................ 55
10.08. EFFECT OF HEADINGS....................................................................... 55
10.09. SUCCESSORS AND ASSIGNS................................................................... 55
10.10. SEPARABILITY............................................................................. 55
10.11. BENEFITS OF INDENTURE.................................................................... 56
10.12. LEGAL HOLIDAYS........................................................................... 56
10.13. GOVERNING LAW............................................................................ 56
10.14. COUNTERPARTS............................................................................. 56
10.15. RECORDING OF INDENTURE................................................................... 56
10.16. ISSUER OBLIGATION........................................................................ 56
10.17. NO PETITION.............................................................................. 57
10.18. INSPECTION............................................................................... 57
10.19. AUTHORITY OF THE ADMINISTRATOR........................................................... 57
Signatures and Seals ......................................................................................... 81
Acknowledgments .............................................................................................. 82
</TABLE>
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EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
v
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This Indenture, dated as of _______________, between NEW
CENTURY Trust Series ____-__, a Delaware business trust, as Issuer (the
"Issuer"), and ____________________________, a ____________________________, as
Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Series ____-_ Mortgage-Backed Notes (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
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(v) words in the singular include the plural and words
in the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instru ment or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
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ARTICLE II
Original Issuance of Notes
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the [County of Orange, The City of Irvine,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
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(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Inden ture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect
6
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the validity and enforceability of this Indenture, the Notes, the Mortgage Loans
and each other instrument or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee shall pay to the Noteholders, the
Certificate Paying Agent, on behalf of the Certificateholders, and to other
Persons the amounts to which they are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation Loss Amounts for the
related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the premium
for the Credit Enhancement Instrument and for any Additional Credit
Enhancement Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior
draws made on the Credit Enhancement Instrument and on any Additional
Credit Enhancement Instrument (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes based
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed to
the Credit Enhancer pursuant to the Insurance Agreement;
(ix [Reserved];
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(x) to reimburse the Administrator for expenditures made
on behalf of the Issuer with respect to the performance of its duties
under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
PROVIDED, HOWEVER, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and PROVIDED, FURTHER, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
and
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surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pur suant to this Section 3.06.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating
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that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest in the
Mortgage Loans and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Mortgage Loans until December 31 in the following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT. (a) The
Issuer will punctually perform and observe all of its obligations and agreements
contained in this Indenture, the Basic Documents and in the instruments and
agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments
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under the Code) or assert any claim against any present or former
Noteholder by reason of the payment of the taxes levied or assessed
upon any part of the Trust Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or other wise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during such
year and of its performance under this Indenture has been made under
such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. RECORDING OF ASSIGNMENTS. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit Date with respect
to any Additional Loans.
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
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Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Inden ture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
Section 3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS
HOLDER. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
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(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer, any Noteholder or any
Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or trans
ferred shall be subject and subordinate to the rights of Holders of the
Notes, (D) unless otherwise provided in such supplemental indenture,
expressly agrees to indemnify, defend and hold harmless the Issuer
against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agrees by
means of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
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(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
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Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (y) payments to the Master
Servicer pursuant to the terms of the Servicing Agreement and (z) payments to
the Indenture Trustee pursuant to Section 1(a)(ii) of the Administration
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO NOTEHOLDERS. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the State ment delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders, and in its capacity as Certificate Paying Agent on
behalf of the Certificateholders shall make a draw on the Credit Enhancement
Instrument in an amount if any equal to the sum of (x) the amount by which the
interest accrued at the Note Interest Rate on the Security Balance of the Notes
exceeds the amount on deposit in the Payment Account available to be distributed
therefor on such Payment Date and (y) the Guaranteed Principal Payment Amount
(the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Credit Enhancement Instrument) in the amount of the Credit
Enhancement Draw Amount to the Credit Enhancer no later than 2:00
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P.M., New York City time, on the second Business Day prior to the applicable
Payment Date. Upon receipt of such Credit Enhancement Draw Amount in accordance
with the terms of the Credit Enhancement Instrument, the Indenture Trustee shall
deposit such Credit Enhancement Draw Amount in the Payment Account for
distribution to Holders (and the Certificate Paying Agent on behalf of the
Certificates) pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit Enhancement Instrument) and the Indenture Trustee shall
submit a Notice for Payment with respect thereto together with the other
documents required to be delivered to the Credit Enhancer pursuant to the Credit
Enhancement Instrument in connection with a draw in respect of any Avoided
Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement,
the Indenture Trustee shall be authorized to make draws thereon subject to the
terms and conditions therein.
Section 3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; PROVIDED, HOWEVER, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as the Indenture Trustee may require and (ii) an
Opinion of Counsel to the effect that such substitution would not (a) adversely
affect in any material respect the tax status of the Notes or (b) cause the
Issuer to be subject to a tax at the entity level. Upon receipt of the items
referred to above and payment of all amounts owing to the Credit Enhancer and
the taking of physical possession of the new credit enhancement, the Indenture
Trustee shall, within five Business Days following receipt of such items and
such taking of physical possession, deliver the replaced Credit Enhancement
Instrument to the Credit Enhancer. In the event of any such replacement the
Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. THE NOTES. The Notes shall be registered in the name of a
nominee desig nated by the Depository. Beneficial Owners will hold interests in
the Notes through the book-entry facilities of the Depository in minimum initial
Principal Balances of $1,000 and integral multiples of $1,000 in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
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transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or sur rendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be canceled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such
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destroyed, lost or stolen Note when so due or payable without surrender thereof.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Issuer and the Indenture Trustee
shall be entitled to recover such replacement Note (or such payment) from the
Person to whom it was delivered or any Person taking such replacement Note from
such Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed
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or returned to it; provided however, that such Issuer Request is timely and the
Notes have not been previously disposed of by the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository, and
no Beneficial Owner will receive a Definitive Note representing such Beneficial
Owner's interest in such Note, except as provided in Section 4.08. Unless and
until definitive, fully registered Notes (the "Definitive Notes") have been
issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full
force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities
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with respect to the Notes and the Administrator is unable to locate a qualified
successor, (ii) the Administrator at its option advises the Indenture Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of an Event of Default, Owners of Notes
representing beneficial interests aggregating at least a majority of the
Security Balances of the Notes advise the Depository in writing that the
continuation of a book-entry system through the Depository is no longer in the
best interests of the Beneficial Owners, then the Depository shall notify all
Beneficial Owners and the Indenture Trustee of the occurrence of any such event
and of the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each Bene
ficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
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(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. have been called for early redemption pursuant to
Section 5.02.
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
each meeting the applicable requirements of Section 10.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
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The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Credit Enhancer
hereunder.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized
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denominations and of like tenor and aggregate principal amount. Until so
exchanged, such temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3.29 to make a draw
therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
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(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other
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comparable judicial Proceedings relative to the Issuer or other obligor upon the
Notes, or to the creditors or property of the Issuer or such other obligor, the
Indenture Trustee, irrespective of whether the principal of any Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute
all amounts received with respect to the claims of the Noteholders and
of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note
holder in any such proceeding except, as aforesaid, to vote for the election of
a trustee in bankruptcy or similar Person.
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(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 10.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts then payable on
the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, and all amounts payable under the Insurance
Agreement, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance Agreement or
(C) the Indenture Trustee determines that the Mortgage Loans will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of a
majority of the aggregate Principal Balances of the
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Notes. In determining such sufficiency or insufficiency with respect to clause
(B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. Notwithstanding the fore
going, so long as an Event of Servicer Termination has not occurred, any Sale of
the Trust Estate shall be made subject to the continued Servicing of the
Mortgage Loans by the Master Servicer as provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and principal
pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of the
Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer
or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
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Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Credit Enhancer, and the Indenture Trustee shall take
such desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority
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of the Security Balances of the Notes, the Indenture Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. CONTROL BY NOTEHOLDERS. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exer cising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Security Balances of Notes;
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(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would mate rially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner
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whatsoever, claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Issuer (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Indenture Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public announcement made at the time and place
of such Sale. The Indenture Trustee hereby expressly waives its right to any
amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer consent
to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement, in full payment thereof in accordance with Section 5.02, on the
Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
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(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
and amounts owing to the Credit Enhancer as a result of such Sale in accordance
with Section 5.04(b) on the Payment Date next succeeding the date of such Sale
and (B) the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes in
order to complete any such Sale or in order for the net Sale price to be
credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
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Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Credit Enhancer under the Servicing Agreement may, and at the direction
(which direction shall be in writing or by telephone (confirmed in writing
promptly thereafter)) of the Holders of 66-2/3% of the Security Balances of the
Notes shall, exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Master Servicer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Mortgage Loan Purchase
Agreement and the Servicing Agreement, as the case may be, and any right of the
Issuer to take such action shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Credit Enhancer, which it is entitled to give under any
of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
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repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture
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Trustee shall give notice thereof to the Credit Enhancer. The Trustee shall mail
to each Noteholder notice of the Event of Default within 90 days after it
occurs. Except in the case of an Event of Default in payment of principal of or
interest on any Note, the Indenture Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the Indenture
Trustee
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by so notifying the Indenture Trustee and the Credit Enhancer and may appoint a
successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable
of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
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In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meet ing any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee here under shall be required to meet the terms of eligibility
as a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given
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to each of them. Every instrument appointing any separate trustee or co-trustee
shall refer to this Agreement and the conditions of this Article VI. Each
separate trustee and co-trustee, upon its acceptance of the trusts conferred,
shall be vested with the estates or property specified in its instrument of
appointment, either jointly with the Indenture Trustee or separately, as may be
provided therein, subject to all the provisions of this Indenture, specifically
including every provision of this Indenture relating to the conduct of,
affecting the liability of, or affording protection to, the Indenture Trustee.
Every such instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATION AND WARRANTY. The Indenture Trustee hereby
represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms
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and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or bylaws of the
Indenture Trustee or any agreement or other instrument to which the
Indenture Trustee is a party or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_________] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. INDENTURE TRUSTEE MAY OWN SECURITIES. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
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this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 199_, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss.
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Credit Enhancer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture
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Trustee to invest any funds in the Funding Account in Eligible Investments
maturing no later than the Business Day preceding each Payment Date and shall
not be sold or disposed of prior to the maturity. Unless otherwise instructed by
the Master Servicer, the Indenture Trustee shall invest all funds in the Payment
Account in its Corporate Trust Short Term Investment Fund so long as it is an
Eligible Investment. During the Funding Period, any amounts received by the
Indenture Trustee in respect of Net Principal Collections for deposit in the
Funding Account, together with any Eligible Investments in which such monies are
or will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided: Amounts on deposit in
the Funding Account in respect of Net Principal Collections may be withdrawn on
each Deposit Date and (1) paid to the Issuer in payment for Additional Loans by
the deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture
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Trustee as provided in Article VIII hereunder shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent, or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,] and a
letter from the Credit Enhancer, stating that the Credit Enhancer has no
objection to such request from the Issuer.]
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to
matters or questions arising under this Indenture or in any
supplemental indenture; provided, that such action shall not materially
and adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
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(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding" or modify or alter the
exception in the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture with respect to any part
of the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or
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permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Inden ture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters
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described in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee an Independent Certificate as to the same matters, if the fair value to
the Issuer of the securities to be so deposited and of all other such securities
made the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii), is 10% or more of
the Security Balances of the Notes, but such a certificate need not be furnished
with respect to any securities so deposited, if the fair value thereof to the
Issuer as set forth in the related Officer's Certificate is less than $25,000 or
less than one percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
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Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller, the Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration
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thereof or in exchange therefor or in lieu thereof, in respect of anything done,
omitted or suffered to be done by the Indenture Trustee or the Issuer in
reliance thereon, whether or not notation of such action is made upon such Note.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT
ENHANCER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Note holders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: NEW CENTURY Trust Series ____-_, in care of [Name of Owner Trustee]
_________________, __________, ______________, Attention of
_________________________________________ with a copy to the
Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Credit Enhancer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein
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<PAGE>
expressly provided) if in writing and mailed, first-class, postage prepaid to
each Noteholder affected by such event, at such Person's as it appears on the
Note Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice nor any
defect in any notice so mailed to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given regardless of whether such notice is in fact actually
received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
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<PAGE>
Section 10.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.10. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.11. BENEFITS OF INDENTURE. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent,
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<PAGE>
officer, director, employee or agent of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity. For all purposes of this Indenture, in
the performance of any duties or obligations of the Issuer hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
NEW CENTURY Trust Series ____- _,
as Issuer
By: ______________________________
not in its individual capacity
but solely as Owner Trustee
By:_________________________________
Name:
Title:
___________________________________,
as Indenture Trustee, as Certificate
Paying Agent and as Note Registrar
By:_________________________________
Name:____________________________
Title:___________________________
__________________________________
hereby accepts the appointment as
Cer tificate Paying Agent pursuant
to Section 3.03 hereof and as
Certificate Registrar pursuant to
Section 4.02 hereof.
__________________________________
By:_______________________________
Title:____________________________
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at _________________, __________________ _____, that he is the
of the Owner Trustee, one of the corpo rations described in and which executed
the above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
__________________________________
Notary Public
[NOTARIAL SEAL]
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ____ day of __________, before me personally appeared
___________________, to me known, who being by me duly sworn, did depose and
say, that he resides at ____________________, that he is the ______________ of
________________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
__________________________________
Notary Public
[NOTARIAL SEAL]
Exhibits 5.1, 8.1, 23.1
-----------------------
April 21, 1999
New Century Mortgage Securities, Inc.
18400 Von Karman, Suite 1000
Irvine, California 92612
New Century Mortgage Securities, Inc.
Mortgage Pass-Through Certificates
Mortgage-Backed Notes
Registration Statement on Form S-3
-------------------------------------
Ladies and Gentlemen:
We are counsel to New Century Mortgage Securities, Inc., a Delaware
corporation (the "Registrant"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of Mortgage Pass-Through
Certificates ("Certificates") and Mortgage-Backed Notes ("Notes"; collectively
with Certificates, "Securities"), and the related preparation and filing of the
Registration Statement on Form S-3 as an Exhibit to which this opinion letter is
being filed (the "Registration Statement"). The Certificates are issuable in
series under separate pooling and servicing agreements (each such agreement, a
"Pooling and Servicing Agreement"), among the Registrant and a master servicer
and a trustee, each to be identified in the prospectus supplement for such
series of Certificates. Each Pooling and Servicing Agreement will be
substantially in one of the forms filed as Exhibits to the Registration
Statement. The Notes are issuable in series under separate indentures (each such
indenture, an "Indenture"), between an indenture trustee and an issuer to be
formed, each to be identified in the prospectus supplement for such series of
Notes. Each Indenture will be substantially in the form filed as an Exhibit to
the Registration Statement.
In rendering this opinion letter, we have examined the documents
described above and such other documents as we have deemed necessary including,
where we have deemed appropriate, representations or certifications of officers
of parties thereto or public officials. In rendering this opinion letter, except
for the matters that are specifically addressed in the opinions expressed below,
we have assumed (i) the authenticity of all documents submitted to us as
originals and the conformity
<PAGE>
New Century Mortgage Securities, Inc. Page 2.
April 21, 1999
to the originals of all documents submitted to us as copies, (ii) the necessary
entity formation and continuing existence in the jurisdiction of formation, and
the necessary licensing and qualification in all jurisdictions, of all parties
to all documents, (iii) the necessary authorization, execution, delivery and
enforceability of all documents, and the necessary entity power with respect
thereto and (iv) that there is not any other agreement that modifies or
supplements the agreements expressed in the documents to which this opinion
letter relates and that renders any of the opinions expressed below inconsistent
with such documents as so modified or supplemented. In rendering this opinion
letter, we have made no inquiry, have conducted no investigation and assume no
responsibility with respect to (a) the accuracy of and compliance by the parties
thereto with the representations, warranties and covenants contained in any
document or (b) the conformity of the underlying assets and related documents to
the requirements of the agreements to which this opinion letter relates.
Our opinions set forth below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality, reasonableness, good faith and fair
dealings and the possible unavailability of specific performance and injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial and other decisions
upon the availability and enforceability of certain covenants, remedies and
other provisions, including the remedies of specific performance and self-help
and provisions imposing penalties and forfeitures and waiving objections to
venue and forum, (iii) bankruptcy, insolvency, receivership, reorganization,
liquidation, voidable preference, fraudulent conveyance and transfer, moratorium
and other similar laws affecting the rights of creditors or secured parties and
(iv) public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of any agreement which purport or are construed to provide
indemnification with respect to securities law violations.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the laws of the State of New York and the Internal
Revenue Code of 1986, as amended. We do not express any opinion with respect to
the securities laws of any jurisdiction or any other matter not specifically
addressed in the opinions expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. Each Pooling and Servicing Agreement, assuming the authorization,
execution and delivery thereof by the parties thereto, will be a
valid and legally binding agreement under the laws of the State
of New York, enforceable thereunder against the Registrant in
accordance with its terms.
2. Each series of Certificates, assuming the authorization,
execution and delivery of the related Pooling and Servicing
Agreement, the execution and authentication of such Certificates
in accordance with that Pooling and Servicing Agreement and the
delivery and payment therefor as contemplated in the Registration
Statement and the prospectus and prospectus supplement delivered
in connection therewith, will be legally and validly issued and
outstanding, fully paid and non-assessable and entitled to the
benefits of that Pooling and Servicing Agreement.
<PAGE>
New Century Mortgage Securities, Inc. Page 3.
April 21, 1999
3. Each Indenture, assuming the authorization, execution and
delivery thereof by the parties thereto, will be a valid and
legally binding agreement under the laws of the State of New
York, enforceable thereunder against the Registrant in accordance
with its terms.
4. Each series of Notes, assuming the authorization, execution and
authentication thereof in accordance with the related Indenture
and the delivery thereof and payment therefor as contemplated in
the Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, will be legally and
validly issued and outstanding, fully paid and non-assessable and
entitled to the benefits of that Indenture.
5. The description of federal income tax consequences appearing
under the heading "Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement, while not
purporting to discuss all possible federal income tax
consequences of an investment in the Securities, is accurate with
respect to those tax consequences which are discussed, and we
confirm that description as our opinion.
We hereby consent to the filing of this opinion letter as an Exhibit to
the Registration Statement, and to the use of our name in the prospectus and
prospectus supplement included in the Registration Statement under the headings
"Certain Federal Income Tax Consequences" and "Legal Matters", without admitting
that we are "persons" within the meaning of Section 7(a) or 11(a)(4) of the 1933
Act, or "experts" within the meaning of Section 11 thereof, with respect to any
portion of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
Exhibit 24.1
NEW CENTURY SECURITIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Patrick J. Flanagan as his true and
lawful attorney-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as director and/or officer of New Century
Mortgage Securities Inc.), to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form S-3, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
SIGNATURE TITLE DATE
/s/ Brad A. Morrice Chief Executive Officer April 16, 1999
- ----------------------------------
Brad A. Morrice
/s/ Edward F. Gotschall Treasurer April 16, 1999
- ----------------------------------
Edward F. Gotschall
/s/ Andrew L. Stidd Director April 16, 1999
- ----------------------------------
Andrew L. Stidd
